Petty cash fund

Definition

A petty cash fund is a small amount of cash kept on hand to cover minor expenses that are not practical to pay by check or credit card. It is used for transactions such as office supplies, postage, or minor repairs and replenished periodically.

5 Must Know Facts For Your Next Test

1. The petty cash fund is established by writing a check for the total amount of the petty cash required.
2. Petty cash transactions are recorded in a petty cash journal to track all expenditures and replenishments.
3. The custodian of the petty cash fund is responsible for its safekeeping and accurate recording of all transactions.
4. Periodic reconciliations are performed to ensure that the remaining cash plus receipts equals the initial fund balance.
5. Any discrepancies found during reconciliation must be investigated and corrected promptly.

Review Questions

Related terms

Imprest System:

A method where a fixed amount of money is reserved for a specific purpose, such as petty cash.

Journal Entry:

A record of financial transactions in an accounting system.

Reconciliation:

The process of ensuring that two sets of records (usually balances) are in agreement.