The other financial statement where the amount of petty cash is used is the statement of cash flow. Because for calculating the ending balance of cash, the petty cash amount should be combined with the cash in hand account. Ensure all petty cash expenses are meticulously accounted for, as even small expenses can significantly affect your accounting.

Petty Cash is also the title of the general ledger current asset account that reports the amount of the company’s petty cash. The amount of petty cash will vary by company and may be in the range of $30 to $300. However, if the cash flow out of the country is restricted, the cash is treated in the accounts as restricted and reported separately. Cash equivalents include U.S. government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper, and other money market instruments. These financial instruments often have short maturities, highly liquid markets, and low risk. The phrase “cash and cash equivalents” is found on balance sheets in the current assets section.

Working Capital

In the financial world, it also refers to a company’s highly liquid assets—funds in checking or other bank accounts, money market funds, short-term debt instruments, or other cash equivalents. Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.” Cash equivalents are short-term, highly liquid assets that can readily be converted into known amounts of cash and with little risk of price fluctuations. An example of a short-term cash equivalent asset would be one that matures in three months or less from the acquisition date. They may be considered as “near-cash,” but are not treated as cash because they can include a penalty to convert back to cash before they mature. Examples are treasury bills (T-bills), money market funds, short-term notes receivable, and guaranteed investment certificates (GICs).

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Setting Up a Petty Cash Fund

To know more about Happay and how to manage your branch petty cash more efficiently, schedule a demo with us today. After estimation, the organization will get an approved amount of cash needed for a specific time range. The specific time could change from organization to organization, and it could be weekly or monthly. A company could need cash quickly in order to cover slowing sales or another, urgent unexpected need for cash.

By regularly reconciling petty cash funds in your organization, you can avoid inefficiencies and unauthorized use. For some organizations, monthly reconciliation works for small businesses, whereas for large organizations weekly reconciliation can get the job done for others. As we mentioned earlier, petty cash is used instead of cash or check to pay for small expenses in a company. Also, it takes a considerable amount of time for the check to be signed and processed.

Example of Cash Equivalents

Since purchases using the petty cash fund are small, it’s typical to see purchase limits of $50 or less with a total account balance of a few hundred dollars. Reconciliation of the petty cash fund should be done periodically to ensure that the fund’s balance is correct. In reconciling the balances, the ending balance or remaining cash on the fund and all receipt charges should be equal to the original balance, which is usually carried over from the previous reporting period. Some lenders may require that, in return for a loan, a company maintain a designated amount of liquid cash equivalents. This financial restriction is intended to protect the lender’s financial interest should business slow. It can also result in better loan terms (due to less risk) for the company that agrees to it.

For online, apps like Money Manager Expense & Budget provide a digital means to record, review, and edit petty cash transactions, offering a secure and efficient way to manage petty cash funds. Finally, the amount withdrawn – paper money or coins – is deposited with the custodian. The petty cash custodian then issues receipts and a petty cash voucher for the required cash. The petty cashier will be responsible for the petty cash drawer and making the right accounting entries. Additionally, the petty cash custodian is also responsible for distributing the cash and collecting bills and receipts for all expenses caused by the petty cash. This is different from the short-term assets included in cash and cash equivalents, whose value doesn’t tend to vary very much and is more predictable.

Note that the entry to record replenishing the fund does not credit the Petty Cash account. We make entries to the Petty Cash account only when the fund is established or when the amount of the fund is changed or when the fund is closed and we want to add back cash in exchange for the petty cash vouchers. In this case, the cash needed to get back to $100 ($100 fund – $7.40 petty cash on hand) of $92.60 equals the total of the petty cash vouchers. A certificate of deposit is a type of savings account with a financial institution. It represents a certain amount of a saver’s capital that can’t be accessed by the saver for a specific period of time. In return for the use of their capital, the financial institution pays savers a fixed rate of interest.

Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low. The reason for replenishing the fund at the end of the accounting period is that no record of is petty cash a cash equivalent the fund expenditures is in the accounts until the check is written and a journal entry is made. (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.).