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Petty Cash Account Questions

Here are some fast answers to questions recently asked through the Fathom site.

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Show/Hide AnswerHow do I set up a Petty Cash Account?

A Petty Cash account should be a bank account in QuickBooks. Petty Cash is an asset. When you set the account up as a bank account, you can easily make entries to record your petty cash purchases.

To set up the account, go to List, Chart of Accounts, and hit Control N which will bring up the new account set up window.

Show/Hide AnswerDo I need to make an end of month entry for Petty Cash in QuickBooks?

You should reconcile or zero out your pretty cash account or accounts at least annually. You can do it monthly or every time that you replenish the cash box. This really depends on the amount of funds in your cash box.

Show/Hide AnswerWhat if we want to keep close track of our petty cash account?

You can track your petty cash account to the penny if you keep a petty cash box or drawer in the office. First, count the funds in the box and make an entry so that your petty cash balance in QuickBooks matches the funds actually in the petty cash box. Date the entry the date you want to start tracking your petty cash.

If there are not enough funds in the box to match your anticipated needs over a reasonable period of time (week, month), then write a check on your checking account and post to the petty cash account. When you look at your petty cash register, you will see that this check shows as a deposit to your petty cash account.

As you spend petty cash funds, use the write checks feature to record each expenditure. You may also make deposits into the petty cash fund. For example, you may have a jar by the coffee pot for contributions and you can remove this money regularly, place it in the petty cash box and record it as a deposit in petty cash.

On a regular basis or whenever you need to add cash to your petty cash box, reconcile the QuickBooks account. First, count the funds in the petty cash box. Then go to Banking, Reconcile and select the petty cash account. Enter the result from your count as the ending balance and continue to the reconcile window. All transactions prior to the date of the reconciliation should be checked. Your difference should then be zero. If it is not zero, this difference is the amount that your cash box is either over or short. Make an entry, either by writing a check if you are over or making a deposit if you are short, for the amount of the difference and date it the date of the reconciliation. Post the entry to an expense account named Over/Short. Once you check that entry in the reconciliation window, your difference should be zero and you can click Reconcile Now.

Show/Hide AnswerHow do I enter an expense that I paid for with cash (Greenbacks)?

The easiest way to record cash receipts is to create a new bank account named Petty Cash.  Then use the write checks feature to record the receipts for cash purchases by writing checks against the Petty Cash Account. Be sure that they are not marked to print.  You can either let them number themselves from 1 which is what QuickBooks wants to do or make up some number series to use. Date the checks for the date the purchase was made.  At the end of the year, the Petty Cash account will have a negative balance which represents the amount of cash that was expended.

Depending on your circumstances and the amount of money involved, you can zero out this account in one of these ways. The entries below should be dated on 12/31.

1. If you are a sole proprietor (or sole owner LLC) who took draws during the year, then just make a journal entry that reduces the amount of your draws by the negative amount in the Petty Cash account.  Your Petty Cash account will then have a zero balance at the end of the year and your draws will reflect the net amount taken.

2. If there are others involved with your company, such as a multi-person LLC or corporation, you could write a real check on 12/31 to pay yourself (or the person who spent the cash) back and so zero out the Petty Cash account. You could create a loan account and make a journal entry to zero the Petty Cash account and enter the loan balance.

3. If more than one person spent petty cash during the year, you could have multiple Petty Cash accounts -- one for each person as long as there are not many people involved.  Then either at the end of the year or occasionally throughout the year, write reimbursement checks to zero out the individual petty cash accounts. If you have many people who are spending petty cash for the firm, it makes more sense to reimburse them throughout the year.

 

Advice and tips provided on the Fathom Graphics website are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.