Tracking petty cash is a significant aspect of small-business financial management. Failure to do so might leave you with an improper or incomplete picture of your company's financial circumstances. It can also lead to faulty accounting, frivolous or inefficient spending, or loss or theft through dishonest employees. Prevent these issues through keeping tighter controls over how your small business uses petty cash, as well as who has contact to it.
The petty cash fund is an actual way to manage smaller expenses in the office without having to submit a formal appropriation every time. Through keeping a small amount of cash on hand, you can make purchases as essential and submit the receipts. Proper tracking and reconciliation is vital to managing the petty cash balance. Reconcile the balance associated to the activity at the end of each accounting period, or more often if your petty cash fund has more regular activity.
The very suitability of petty cash also presents its most important audit challenge; since the cash box is typically not well-secured, reliably tracking access to the money presents an internal control risk. Confirming that the cash is used correctly necessitates a reconciliation of receipts, a review of the cash storage location, and a review of the processes employees use to access the funds. An audit must be performed regularly.
Just because you have paid for a basic item, like a mop or some erasers, out of petty cash, you still require documentation. As far as the IRS is concerned, a deduction is a deduction. It does not matter whether you pay through credit card, check or out of a cash box. Just like other deductions, you still have to record the details of the purchase or payment. The IRS lists the information required to backup a deduction on your returns, so log that directly on the receipt. You then can store the receipt in the petty cash box and later log it in the database where you store deduction information.
