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Petty Cash

PETTY CASH EXPENSE BOOK

WHY DO YOU NEED ONE?
Why because we need to buy milk, coffee, tea, biscuits etc., and these are usually bought down in the local shop. We don’t have a canteen or an account with a wholesaler. The local shopkeeper does not like company cheques; he likes cash and does not like operating a credit account for anyone
We have two choices:
1. We pay for the items out of our own pocket and claim them back as expenses at the end of the month. It is surprising how much tea and coffee gets drunk in a month. Why should you subsidise the canteen.
2. We have a petty cash float and from this all cash expenses are paid. e.g. Window cleaners usually get paid in cash, one off courier fees or when you can not get a cheque signed and should only be used as a last resort or change for customers at the trade counter.

With our petty cash red book we can record all the cash paid out and create one amount to be posted to the accounts system. This makes our lives easier.

HOW TO SET UP A PETTY CASH BOOK

A petty cash book is setup to analyse the type of expense of each of the invoices/till receipts/scraps of paper you received when you handed over money for something.
VERY IMPORTANT:
Always get a receipt no matter how small the item is or how small the physical receipt size may be. This also allows you to claim back VAT where normally you would ignore it and it proves where you spent the money when the taxman wants to know what you have spent.

Petty cash book example shown on the next pages


PETTY CASH BOOK

WHAT GETS ENTERED IN EACH COLUMN

Date:
The date on the Purchase Invoice/Supplier receipt/Scrap of paper received.
Supplier Name:
The name of the Supplier on the Purchase Invoice.
Our Ref:
The filing reference number we have applied to this Invoice.
€Gross:
This is the total value of the invoice including VAT.
€VAT:
This is the VAT calculated for this invoice
Expense Analysis
The net amount (the gross amount less the vat amount) is entered in each of the relevant expense analysis columns

WHAT TO LOOK FOR ON A PURCHASE INVOICE

 Suppliers Limited Company Name and/or Trading Name
 Suppliers Address
 Date
 Description of Goods/Services being supplied
 Net Value of Goods
 Vat Rate
 Vat Amount charged on Goods
 Gross Value of Goods
 Suppliers Vat number

If you get an Invoice without a VAT breakdown
To calculate the net and VAT amount on that Invoice use the following formula:

Net Value of Goods = Gross Value of Goods ÷ 1.21
(Where 21 is the vat rate on the goods)
(e.g. 21% = .21, 15% = .15, 10% =.10)
Vat Amount charged on Goods
= Gross Value of Goods – Net Value of Goods


HOW TO COMPLETE THE PETTY CASH BOOK


EXAMPLE OF PETTY CASH INVOICE:

PETTY CASH INVOICE FOR THE MONTH OF JANUARY

Supplier: Petty Cash
A/c Code: PET01
Date: 31/01/06

Canteen 10.30
Cleaning -
Motor 2.64
Stationery 3.18
Travel -
Total Net 16.12
Vat @ 21% 0.56
Vat @ 13.5% 0.42
Total VAT 0.98
Total 17.10

Use this as an invoice to enter into your computer accounts systems

HOW TO OPERATE A PETTY CASH BOOK SYSTEM

Using the “Imprest” system
You issue a cheque (a float) for lets say €200 at the beginning of the month.
You spend €17.10 during the month
You should now have €182.90 of your float left (200 – 17.10) in your petty cash box.
You would now be issued a cheque for €17.10, which would be cashed at the bank and then placed in the petty cash box.
You now again have €200 in your petty cash book.
You should never have more than €200 in your petty cash box.

QUESTION
What do I do if I run out of Petty cash?

ANSWER
If you run out of petty cash you have two choices
1. Tell the person you have no money and tell them come back when you have more money.
2. Get an increase in your float of lets say €50. Your float is now €250. You can now issue the cash to the person looking for the cash.

If you do increase the float and you want to bring the float back down again then only issue a cheque at the end of the month to bring the float back to €200.
If you wish the float to stay at €250 then issue a cheque to bring the float back up to €250.

Always remember at the end of the month the petty cash must balance
i.e.
Opening Float €200.00
Less invoices € 17.10
Closing Balance €182.90
Amount in box €182.90

If the closing balance does not equal the amount in the petty cash box, then you have given out more money than you should have, or you have recorded something wrong.

CASH PURCHASES, PETTY CASH AND EXPENSES, WHAT’S THE DIFFERENCE?

Do not confuse the petty cash book with purchases from suppliers who you have no credit with and purchase large value goods from but always pay them direct with a cheque and that they accept cheque payments. This is dealt with in a supplier account set up as cash purchases in the accounts software.

The Petty Cash account is also set up on the accounts software as a supplier, but only the total of the petty cash book is posted to the petty cash account in the accounts software, instead of the many individual invoices recorded in the petty cash book.

Expenses accumulated by a sales rep are dealt with separately. The sales reps usually have their own float and claim expenses at the end of every month and will be issued a cheque. They effectively run their own petty cash book and must fill out a claim form similar to a petty cash book. They will receive a cheque for these expenses in return. They will not receive payment from the petty cash float.