- 1). Establish a petty cash fund. Petty cash is a small amount of cash kept in the office. The cash on hand can be used to purchase minor items for the business when necessary. The amount of cash you maintain in the petty cash account depends on the needs of the business and how often you intend to replenish the fund.
- 2). Appoint a petty cash custodian. The custodian is a person in a specific department authorized to make payments from the fund. This person is responsible for administering the petty cash funds. Allowing only one person to handle the fund makes it easier to trace discrepancies.
- 3). Record any amount withdrawn from the petty cash fund. Have the custodian keep receipts and written vouchers to account for any deductions from the fund. Be specific and include the purchase, reason and exact dollar amount in the voucher.
- 4). Balance the account. Have the custodian hand over the petty cash fund along with all receipts and vouchers. Compare the initial account balance to the current total after deducting receipts. Small discrepancies may be the result of a counting error or lost receipts. Address large discrepancies immediately. Some companies choose to balance their petty cash account monthly, while others balance it daily.
- 5). Conduct periodic audits. To reduce the risk of theft or error, it is necessary to conduct occasional audits. If you determine the account is being misused on a recurring basis, consider appointing a new custodian or revoking the account.
- 6). Replenish the account for the exact amount of the receipts. Begin each new period with the same amount in the account. Allow the custodian to count the cash and sign agreeing to the amount in the fund.
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