Describe the operation of petty cash fund
Petty cash fund is a small amount of cash that is kept on hand by businesses to cover small expenses that occur frequently, such as office supplies, postage, and miscellaneous expenses. Here's how the petty cash fund typically works:
1. Establish Fund: The petty cash fund is established by transferring a set amount of money from the company's regular bank account to a special petty cash account.
2. Assign Custodian: A person is assigned to be the custodian of the petty cash fund. This person is responsible for keeping track of the fund and making sure that all expenses are properly recorded.
3. Replenish Fund: When the petty cash fund runs low, the custodian requests reimbursement from the regular bank account. To do this, the custodian prepares a petty cash voucher that includes the date, the amount, and the purpose of the expenses. This voucher is submitted to the person responsible for approving reimbursements.
4. Record Transactions: All transactions involving the petty cash fund must be properly recorded in the company's accounting system. This includes the amount of the initial transfer, the amount of each expense, and the amount of each reimbursement.
5. Reconcile Account: To make sure that the petty cash fund is accurate, the account must be reconciled on a regular basis. This means comparing the recorded transactions to the actual cash on hand and making any necessary adjustments.
By following these steps, businesses can effectively manage their petty cash fund and ensure that all expenses are properly recorded and accounted for.