What is petty cash?
Petty cash refers to a small fund of physical cash kept by a business to cover minor, everyday expenses which are impractical to process through formal payment systems.
Why do businesses use petty cash?
Petty cash allows employees to quickly pay for small items such as office supplies, travel costs, or minor repairs without going through lengthy approval or payment processes.
How is petty cash managed?
Businesses assign responsibility for petty cash to a custodian who records each transaction. A log is maintained showing the amount spent, purpose, and remaining balance. Regular reconciliation ensures accuracy.
What are risks associated with petty cash?
Without proper controls, petty cash is vulnerable to misuse, errors, or theft. Poor tracking can lead to discrepancies in financial records.
How do businesses control petty cash effectively?
Controls include setting spending limits, requiring receipts, maintaining logs, and conducting regular reconciliations to ensure all transactions are accounted for.