Accounting: The Language of Business - Vol. 2 (Intermediate: Part 154)

• Sit down and estimate the cost (Luke 14:28)

Short-Term Operating Assets: Cash and Receivables (Part S)

by

Charles Lamson

Petty Cash

Petty cash funds are minor amounts of cash that a company keeps on hand in order to pay for small, miscellaneous expenses such as visitor parking, lunches, and reimbursements for tools and supplies. It is impractical to issue checks through the company's cash disbursement system to pay for these minor expenses. Therefore, cash is held for these purposes.

An imprest petty cash system provides the best internal control over cash on hand. An imprest petty cash system involves a cash fund for which a fixed amount of cash is reserved on hand and is then replenished at the end of the period. At any point in time, the sum of cash on hand plus petty cash receipts must equal the fixed amount of the fund. If there is a shortage or overage, the company uses a cash short and over account to record the difference from the imprest amount. Shortage and overage amounts are reported on the income statement as other expenses and revenues, respectively. Example 9A.2 illustrates accounting for an imprest petty cash fund.

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., P. 505*

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