Question

What is a petty cash fund? How are payments made from the fund? What are some of the internal controls of the Petty Cash Fund? in terms a non accounting person can understand please.

Answer 1

Petty cash fund which is also referred as Petty Cash refers to small amounts of cash that a company or firm or proprietary firm needs to have to pay off small amounts. It usually refers to a small amount for which it would not be feasible for a company or firm or proprietary firm to issue cheques. So this would save time as payments for small expenditures would not be required to go through the whole process of writing a cheque , authorising it and cashing it. Petty Cash fund is usually looked after by a Petty Cash Custodian.

Now moving to the next part as how payments are made from the fund

• Usually what a business does is provide sufficient amount of money to petty cash fund which would be reasonable for disbursements for a period.
• The Custodian of Petty cash will keep the fund in a box which can be locked.
• When the custodian needs to disburse certain amount from the fund he prepares a Petty Cash voucher which would be signed by the person receiving such amounts.
• This procedure will continue for every disbursement made from Petty Cash Fund.
• The Custodian will be responsible to reconcile the payments made from the funds with the amounts stated in the Petty Cash Vouchers.

Some Internal Controls of Petty Cash Funds

• Physically verify the amounts in Petty Cash Fund atleast once a month and reconcile it with the fund account.
• Surprise checks to Petty Cash Fund is necessary to ensure that there is no variation between the expected cash and the actual cash.
• Ensuring that Petty Cash expenses are for legitimate expenses of the company.
• The Petty cash box should be locked at all times and should be accessible to only few persons.
• All Petty Cash vouchers should be kept inside Petty cash box untill recorded.
• Ensuring all Petty Cash vouchers are against reciepts for accuracy.