Question

Describe the need for a petty cash fund. How does the fund work and why is it needed? What are some controls that should be placed on the petty cash fund?

Answer 1

Petty Cash Book

petty cash book is created to facilitate small payments in a business or organization. It caters for items such as postage and stamps, bus fare and stationery. It is meant to meet the day-to-day expenses and is entrusted in the hands of a petty cashier

Need of a petty cash system

• It records all the petty expenses incurred in the organization
• It avoids the inconvenience of using checks to make small payments
• It assists in updating cash transaction records and allows division of labour in an organization.
• It provides information on small payments made to meet certain expenses
• It can be used to control petty expenses since it allows for comparison of the petty expenses incurred between two periods.
• Small businesses such as restaurants find petty cash log important because it avails funds that can be used to meet unpredictable shortfalls.

controls that should be placed on the petty cash fund

1. Decide on a float and when to replenish
2. Segregation of roles
3. Define the expense limit and approval matrix
4. Use petty cash vouchers for all petty cash transaction
5. Demand receipts to back up the expenses claimed
6. Review and approval of petty cash reimbursement request