Petty Cash Reimbursement Journal Entry
Petty cash is the cash that company holds for small payments settled in the office or operation. During the day, company needs to pay for some small expenses which are not practical to ask for credit from a supplier.
Company usually keep some small cash balance to pay for minor expenses such as taxi, office supplies, cards, and so on. The company will set the floating cash which suitable for each business. It should not be too high as we will lose the opportunity in using cash and even face fraud. It should not be too low as it will not enough for the business operation and it can delay the work process.
In the begging, the company will withdraw money from bank account and keep it with a responsible person. Any small expenses which meet the criteria will be paid using petty cash. The responsible person will keep a record of cash movement during the month. All expenses paid by petty cash must attach with supporting documents such as invoices.
At the month-end, the accountant will summary all expenses and attach all supporting documents. They will reconcile the petty cash balance by comparing the remaining cash on paper with the actual cash count.
Remaining cash = Beginning Cash Balance – Total Cash Out During the month
The remaining cash should equal the actual cash count in the petty cash box. Any variance must be investigated. The beginning balance is based on the prior period report while the total cash out is based on the cash-out report that attaches with supporting documents during the month. If both reports are correct, the remaining cash will be the same as actual cash.
After reconciliation, accountant will reimburse the petty cash to its original balance which is known as the floating balance.
Petty Cash Reimbursement Journal Entry
The reimbursement process will refill the petty cash to the floating balance and recognize expenses based on the classification. So we have to separate the process of petty cash reimbursement into two journal entries.
The company makes journal entry by debiting expenses and crediting petty cash.
| Account | Debit | Credit |
|---|---|---|
| Expense | 000 | |
| Petty Cash | 000 |
The company can use expense subaccounts such as taxi expenses, office supplies, and other miscellaneous expenses. It depends on the nature of transactions. To simplify the recording, an accountant may summary the transactions to record the journal entry.
The petty cash may be use to purchase small assets and staff advances, so the entry will not impact the expense but other assets. The accountant can make journal entry by debiting assets or staff advances and credit petty cash.
| Account | Debit | Credit |
|---|---|---|
| Staff Advance/Other assets | 000 | |
| Petty Cash | 000 |
After the recording of petty cash usage, the petty cash balance will decrease. Accountants need to reimburse the petty cash to float the balance. The company needs to make journal entry by debiting petty cash and credit cash at bank.
| Account | Debit | Credit |
|---|---|---|
| Petty Cash | 000 | |
| Cash at Bank | 000 |
This entry makes to record the transfer of cash at bank to petty cash. They may use other cash account based on company policy.
Petty Cash Reimbursement Journal Entry Example
ABC is a consulting firm that provides services to other companies. In order to support the business activity, management decides to set up petty cash of $ 5,000 to support the small and urgent payment.
On 01 January 202X, the company has set up a petty cash balance of $ 5,000. During the month, the company has used the money to pay for taxi $ 100, other expenses $ 500, and staff advance $ 2,000 for urgent travel.
At the end of the month, company refills the petty cash to its float balance, $ 5,000. They withdraw cash at bank to petty cash.
Please prepare the journal entry for petty cash reimbursement.
First, ABC needs to record expenses and staff advances which are paid by petty cash. The double journal entry is debiting taxi expense, other expenses, and staff advance. The credit side is petty cash.
| Account | Debit | Credit |
|---|---|---|
| Taxi Expense | 100 | |
| Other Expense | 500 | |
| Staff Advance | 2,000 | |
| Petty Cash | 2,600 |
Taxi and other expenses will impact the income statement during the month while staff advance is presented as a current asset in the balance sheet.
In order to reimburse the petty cash, we need to record the transfer of cash at bank to petty cash. As the company has used a petty cash amount $ 2,600 so we need to reimburse back this amount to let the petty cash reach the float.
The company makes journal entry by debiting petty cash $ 2,600 and credit cash at bank. The cash will move from cash at the bank to petty cash.
| Account | Debit | Credit |
|---|---|---|
| Petty Cash | 2,600 | |
| Cash at Bank | 2,600 |