There is a difference between the cash in your cash drawer (which you use to make change for your clients) and "petty cash," the fund you use for small cash expenses. The cash in the cash drawer represents a portion of the practice's gross fees from clients. Cash drawers should be reconciled at the end of every shift and/or whenever the person using the drawer changes (think lunch breaks). It is important from a management perspective and a tax perspective that cash (and checks) are deposited correctly and in full to the business bank accounts.

 

While it may be convenient to take money from the cash drawer when you send a staff member out to buy stamps or coffee, you should always keep the cash drawer separate from petty cash.

 

What is petty cash?

Petty cash is the cash and coins available to pay small expenses that you don't wish to pay by check or credit card. You may have heard the term "imprest" petty cash. This simply means that the petty cash fund is maintained at a consistent balance, $100 for example. Generally, the petty cash fund is kept near the front desk or in the manager's office in a lockable box, or other container that can be secured. Store petty cash in the safe whenever the practice is closed. During the day, a designated person, usually the manager or head receptionist disperses money and collects receipts for what was purchased.

 

The amount varies a bit from practice to practice and depends somewhat on how often you use petty cash and the price of the items you buy. For example, if you run out of toner for your laser printer, you may need $100 to buy a replacement cartridge off the shelf at your favorite office supply store. If your petty cash fund is too small, you will need to replenish it often. Conversely, if you keep too much petty cash, it creates an opportunity for money to disappear. A fund of $100 or less is sufficient for most practices. If you need to replenish the cash more than twice per month, increase the balance to $125 or $150.     

 

Managing petty cash

The combined total of the cash and the receipts in the petty cash box at any point in time should equal the set amount - $100 or whatever amount you choose. At least monthly, or whenever the fund runs low, the person responsible for petty cash adds up all the receipts, indicates the appropriate expense account for each expense, and is given a check to replenish the fund. At that point, the expenses that were paid from the fund are recorded in the practice's accounting system.  If you use QuickBooks, set up "Petty Cash" as a bank account. This allows you to use the tools in QuickBooks to record expenses and reconcile the account.

 

Here is an example of your petty cash system should work. 

 

Throughout the month, cash is taken from the fund to pay incidental expenses. At the end of the month and whenever the cash is low, the petty cash fund should be reconciled to verify that there is still $100 in cash and receipts. To reconcile petty cash, begin by counting the paper money and coins. Next, organize the receipts by the type of expense paid, such as postage, office supplies, coffee, and add up the total. This total, plus the total of the paper money and coins, should equal $100.

 

In QuickBooks, there are two methods for entering petty cash.

Method 1:

1. Open the "Write Checks" window.
2. Create a check for the total of the expenses paid by petty cash. This is the same amount needed to replenish the fund. 
3. Tab down to the expense section and enter the total paid out for each expense category. (Alternatively, enter each receipt on a separate line.) Doing this allocates the money spent to the appropriate expense account.

Method 2:

1. Enter each receipt, including the date, payee, total, and expense type.
2. Reconcile the petty cash account the same way you reconcile the bank account. Use the set amount ($100) as the ending balance and reconcile like usual. This process maintains the correct balance in petty cash on the practice's balance sheet and records the expenses in QuickBooks.

What if the petty cash fund doesn't balance?

The main reason petty cash doesn't balance is that receipts are missing. It's important for the per
son responsible for petty cash to follow up with anyone who was given petty cash and get a receipt within 24 hours. Because these expenses are frequently contemporaneous, receipts should be readily available. If petty cash is consistently short, limit access to the money. You may also decide to reduce the amount in the petty cash fund. We have worked with practices where employees treated petty cash as a personal emergency fund. Cash would be short one day only to be over a few days later, when the money was repaid. If this occurs in your practice, keep petty cash locked up at all times.

 

Example:

 

The Petty Cash Fund is set at $100

There are three receipts:

 

Water/Soda for Staff = $22.50 (Office Expense)

Printer Cartridges = $19.50 (Office Expense)

Stamps = $9.80 (Postage Expense)

 

First, a total of bills and coins comes to $48.20, a ten, two fives, three ones and two dimes. 

Then total of receipts in hand comes to $51.80

 

Now begin the replenishing process. 

• Open "Write Checks" window. 
• Use the current date for the check date. 
• The check should be payable to whomever will be going to the bank, usually a manager or owner.
• The amount from the total of receipts, is $51.80
• Then tab to the expense section to distribute the costs. 

Either record in total

Office Expense @ $42.00

Postage and Shipping Expense @ $9.80

Or individually

Office Expense @ $22.50

Office Expense @ $19.50

Postage and Shipping Expense @ $9.80

 

You might consider writing in the memo portion the vendor's name, i.e. Supermarket, Office Depot, USPS. Attach your receipts to the check stub and file accordingly.  Once the check is cashed, combine the funds and double check your petty cash total is now $100.