Petty cash is what comes in handy when your company desperately needs expenses for an inquiry that was unplanned and unaccounted for. Therefore learning about effective ways to control and manage it is an absolute necessity for businesses and companies that are still in their initial phases of economic and financial independence.
What is Petty Cash?
Petty cash can be best described as a small amount of cash on hand that can prove to be valuable for unexpected and inevitable expenses that can make an appearance during a business venture or day. This hands-on money can then be used to pay for extra reimbursements, fares, postage funds, and some other accidental or incidental expenses that are not possible to quantify or cater to at any point in time.
What is a Petty Cash Book?
Petty cash book is a term that is used for the documentation of all the expenses that are unplanned but are needed to be recorded nonetheless.
The simple and rudimentary purpose of keeping a petty cash book is to ensure that all expenses planned or unplanned is kept in records and are not missing at all. The ledger is needed to keep an entry of such spending so that they do not make a mess for accountants at the end of the day, especially during audits.
Moreover, unplanned spending is what makes petty cash different from the set or allotted budgets and from cash on hand.
Companies are required and needed to reconcile, rearrange and refresh the petty cash amount. Now the frequency of these modifications and the budget allotment of petty cash depends on the type and domain of the company and business.
Why is it Important?
Even though companies and the latest business models do not encourage the unplanned cash system, the need for it is still inevitable. From paying an uber fare to reimbursing an emergency client, petty cash takes care of all the unplanned expenses for a company. All miscellaneous expenditures are made possible with the help of petty cash.
Petty cash especially plays a significant and undeniable role when you are a humble company or a startup that is managing its foot in the economic sector with its financial stability or situation. The petty cash comes in handy for them because the accountants do not have to run spreadsheets or maintain ledgers just to pay a simple uber fare. This way the companies are able to pay off small and unexpected expenses on time.
Ways to Improve Control of Petty Cash Flow
Here are some important tips with the help of which you can control your petty cash in a better and improved manner.
Decide on a Budget and Know How to Refresh the Budget
One of the main things that you need to know about petty cash management is having a firm budget that has been dedicated to it. The other thing, in this case, is the amount that you are dedicating to replenish the cash flow in the petty cash budget.
A float is best described as the maximum amount of budget that is kept in the petty cash at any given time. And the replenishment is the limit at which the petty cash must be reimbursed and should not be ignored.
In order to have a sane definition of the amount of float, you first need to track some small payments that your accounts department has been making in a course of a week or month. This way your company won’t suffer from an oversized float that might be damaging for other ventures and an undersized float that is not catering to the unexpected expenses that might arise.
Have a Definite Approval Strategy
Two things are of utmost importance especially when you have petty cash in hand.
Determining who will handle all the approvals of the petty cash transactions and approvals
How much money at a specific time can be drawn out of a petty cash account or the limit from which the transactions cannot exceed? This needs to be properly catered to at the start of the budget allocation so that the amount in the petty cash can be justified for unplanned expenses.
Allocation of a Separate Resource for Petty Cash
Although not an easy thing to accomplish in a startup yet this is something that is highly encouraged if you are looking for ways to effectively manage a petty cash account. Companies need to allocate separate resources for petty cash approvals and separate resources for petty cash management. This way the errors are limited and there is a better flow of expenses in the company.
Collection of Receipts
Another thing that is of utmost and prime importance so that you can manage your petty cash effectively is the collection of receipts to back up the claims. For example, taxi services might not provide receipts, during such case scenarios it becomes apparent to trust the reasonableness of the data provided and the truthfulness of the employee.
Review and Approval Process of the Petty Cash Reimbursements
One of the best ways to make sure that your company is thriving with a petty cash account is to ensure the availability of all the supporting documents and cash receipts necessary and impertinent for the petty cash reimbursement process.
The one who is responsible for all such handling should ask for the scrutinization of the vouchers so that the amount claimed and the amount of the reimbursement money is matched. Secondly, the supported documents must be paid so that the employee is unable to use it again for any other transaction. Last but not least the submitted document amount and the reimbursed money should be sum total to the exact amount. This way the accounting department can reduce errors to a minimum.
The Bottom Line
Deciding on the right budget for petty cash may differ from business to business, but one thing that stays the same in all such scenarios is effective management. Extract all the necessary and required information from the above-mentioned tips and enjoy the perks of effective petty cash management, thank us later!
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