We often get in touch with Petty Cash terminology in our daily life, while in the financial report, petty cash is a specific account, that used to manage small and routine transaction.

Basic characteristics of petty cash are:

1. The amount is specify, determined by the Board of Directors and based on the operational need of the company for a certain period.
2. Used to finance the routine small transactions.
3. Kept in a specific small box, used to be called a “petty cash box” or it can also be kept in an envelope.
4. Managed or maintained by a petty cash cashier.

In a company’s operational activity, petty cash hold an important role, regardless the value of the petty cash. Generally, petty cash handles small transactions, which occurs daily from the beginning of the company operational hours until the end of the day. Therefore petty cash management must be done in appropriate way in accordance to the company operational activity. For example: if the petty cash’ fund is running minimum, while an urgent need arised. It is clearly not possible to pay the product with cheque or debit card. For those reason, there are few tips in organizing the petty cash:

1. Determine Petty Cash’ Limit

When we established petty cash account, the board of Director must determine the balance of the petty cash based on company’s operational activities in a certain period. There are 2 alternative entry methods of petty cash, imprest method and fluctuative method. Imprest method keep the petty cash’ balance always similar to the determined balance. Generally, at the end of a certain period, petty cash cashier will request a replenish as much as the reported outcome, so that the petty cash’ outcome is recorded when the replenishment take place. While in fluctuative method, petty cash balance is fluctuated according to the sum of petty cash’ outcomes, and the deadline to refill the fund is not determined.

2. Petty Cash Cashier Appointment

After the balance of the petty cash is determined, there must be a staff, who is responsible to manage the petty cash, usually known as the petty cash cashier. It is due to petty cash function is in the regular and routine transactions. In addition, to be a petty cashier, she/he must fulfilled several criteria as follows: she/he has to master the basic accountancy, ability to handle small amount of purchasing, consistent, honest and master simple computer programs, such as Microsoft excel. The Management / Head of Accounting should supply the petty cash cashier with related trainings to the petty cash before he/she starts their duty. Starting with guidance about the limit of the petty cash’ fund, that should be approved by appointed authorities, the procedure or entry method and the fund replenishment, as well as crosscheck method between the reminding cash balance with the petty cash cashier documentation.

3. PettyCcash’ Replenishment

After the balance limit and petty cash’ entries are determined, the Financial Controller should provide entry order to the General Cashier to draw cash from the bank. The money should be received by the petty cash cashier, and physically counted and officially handed over with an official receipt if the petty cash balance reached its minimum amount, the petty cash cashier should propose the Financial Controller to replenish the fund according the entry method.

4. Petty Cash’ Usage

Petty cash cashier should only disburse the approved payment request or procurement which already obtained the permission from the appointed authority / Financial Controller. Every disbursement must be recorded by the petty cash cashier using a disbursement receipt signed by the receiver. The transaction will be recorded in a petty cash book, and the receipt must be kept in a good archive, completed with the “PAID” stamp.

While a usual management process of the petty cash is implemented, petty cash cashier have to conduct a physical count in order to balance with the petty cash’ entry documentation. The process is usually known as petty cash reconciliation. By performing the petty cash reconciliation regularly, it will lighten the job for petty cash reconciliation at the end of the day. Financial Controller must perform a regular inspection to petty cash’ physical in anticipation of any fraud by the petty cashier.