Every business has to take care of several smaller expenses on a daily basis. Expenses such as daily administrative costs, repairs, purchase of stationery, and other charges have to be paid in cash. Paying through debit/credit card for such expenses may not be a preferred option. For payments which are small and need to be paid immediately, businesses need cash in hand.
Petty cash allows the businesses to account for the expenditures with minimal cost and administrative confusion. Here are a few ways how you can account your business’s petty cash.
Keep The Cash Secured
The first thing you need to do is secure your cash. Petty cash needs to be kept secured to avoid any scams, thefts, or inappropriate use. For this purpose, always keep your petty cash in a locker. You can also keep the money in lock boxes and employ a trustworthy person to take care of the finances. Ensure you allow only a few people to access the lockbox or the locker.
Create a Petty Cash Transaction Log
For every petty cash expense and deposit, keep a log of the transactions. The transaction log or petty cash flow statement can be maintained manually or in the form of an online spreadsheet. The motive of creating and maintaining a transaction log is to ensure that you have the accurate figures of all your minor transactions and you can cross check the amount of cash you have in hand. This way if you do not have sufficient petty cash, then you can make the necessary arrangements in order to pay for expenses that may arise.
Set a Cash Withdrawal Limit
Petty cash is used to pay for small purchases where other modes of payment are not an ideal option. But, that doesn’t mean you use petty cash for all your business expenses. Set a daily or weekly withdrawal limit so that you don’t end up using all your cash. If there is any transaction above a certain limit, then use other modes of payment.
Receipts will help you to understand the total amount of expenses incurred using cash. Attach a receipt of each cash transaction to know where the expense has taken place. The receipts should contain the exact amount paid along with the date of the payment. Always ask your employees for receipts if you have to pay them in the form of cash to avoid inappropriate use of organization’s finance.
Although the amount of cash involved to manage your daily or routine expenses may not be much, for a small business it could mean a lot especially over a longer period of time. Plus, you do not want to be in a situation where you need to make an immediate payment but do not have sufficient cash available. Therefore, follow these tips, to manage your petty cash better. For any help or more information to manage your finances, consult a financial controller.