How to Setup a Petty Cash Book For Your Small Business

The Step by Step Guide to Prepare Your Petty Cash Book

Do you require cash for unexpected expenses almost on a daily basis?

Whether it’s money for some office supplies, lunch for clients or employees, cab fares or money to pay the postman when he brings a letter or a COD package, businesses need to keep some cash in hand for such unexpected expenses. In business terminology, we call it petty cash.

What is Petty cash?

Petty cash is a small amount of money kept aside for the day-to-day expenses in your business.Small businesses mainly setup a petty cash book for convenience, as sometimes you need a quick alternative to use in place of your company’s regular payment process.

So what are some examples of petty cash expenses in a business?

• Petty cash expenses include office supplies, catered lunches, postage, cab fares or even a simple cup of tea/coffee.

Why is it important for you to maintain a petty cash book?

If these petty expenses aren’t documented in your books, a lot of money can go unclaimed. These little expenses can be of a significant amount in the long-run once they keep accumulating.

For example
: If a cup of tea/coffee costs Rs.10 per cup, it will be Rs.10,000 if your business has 10 employees for just 100 days in a year.

Other examples include:

• To pay for small purchases which require cash, such as food for your employees or coffee supplies or a parking ticket
• To reimburse employees for goods/items they have bought for your business.

By accounting these expenses in the petty cash book, it becomes easier for you to track tax-deductible expenses, making journal entries and also helps in separating personal expenses from business expenses.

4 Easy Steps: Setting up a Petty Cash Book

Step 1
: Add a petty cash book account to your books of accounts, if you do not already have one. Also, start a petty cash fund by drawing a cheque on your company to ’Petty Cash’ and cash the cheque.

Note
: If you are a small business with fewer people you may only need Rs.5000 in your petty cash fund. But if you’re a larger SME, you may need a larger fund. So based on the size of your business and your judgment as a business owner keep the contingency.

Step 2
: Place the petty cash from the cheque you cashed at a safe & designated location within your workplace (Example: a lockable drawer or a safe).

Give access to the petty cash fund to only a few people and assign the responsibility for refilling & recording the transactions of the petty cash fund to a specific person out of them.

Step 3
: Make a list of the expenses made out of the petty cash fund and keep the receipts of all the expenditures made attached to that list.

Step 4
: Refill the petty cash fund back to the decided and approved amount, as needed.

Format of Petty Cash Book for your business:

Petty Cash Book Format

Amount Received	Date	Particulars	Voucher No.	Ledger Folio	Expense (Amt. Paid)

Example:

The following transactions occurred in the books of GUPTA JI LTD in the month of May 2019.May 2 - Cheque received for Rs.700 to open the petty cash bookMay 3 - Postage paid    Rs.50May 6 - Paid taxi hire of traveling employee (xxx to location Y)    Rs.100May 8 - Paid cleaning lady   Rs.125May 13 - Telegram sent to Delhi    Rs.40May 17 - Cart hire paid on goods bought for business    Rs.60May 19 -
Stationary purchased    Rs.120May 25 -
Customer's tiffin charges    Rs.60May 31 - Settled the pending balance due to Smith    Rs.85

Amount Received	Date	Particulars	Voucher No.	Ledger Folio	Expense (Amt. Paid)
Rs.	2019				Rs.
700	May 2	To Bank
	May 3	By Postage			50
	May 6	By Taxi Hire			100
	May 8	By Wages			125
	May 13	By Telegram			40
	May 17	By Car Hire			60
	May 19	By Stationary			120
	May 25	By Tiffin Charges			60
	May 31	By Smith			85
	May 31	By Balacane C/D
700					700
Rs.60	Mar 1	By Balacane C/D

Taking these easy but systematic steps when setting up your petty cash book will help you protect your daily expense cash flow, ensuring it is used appropriately and recorded systematically.

(The above story first appeared on LatestLY on Apr 30, 2020 11:30 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).