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You can use Payables to pay out to the petty cash fund and to record the expenses paid by the fund.

Setting Up a Petty Cash Fund

Prerequisites

   Set up a general ledger account for petty cash.

   Set up an accounts receivable clearing account.

   To set up a petty cash fund:

1. Set up administrative and control procedures:

Create a petty cash agreement that specifies all the policies regarding petty cash reimbursements. Your petty cash administrator should sign the agreement, or agree online if you use an electronic template.

Create a standard petty cash reimbursement form or electronic template for employees to complete and submit to the administrator with their receipts.

Create a standard petty cash reimbursement log to be submitted by the administrator when requesting cash to replenish the fund. The reimbursement log breaks down expenses by account, lists total disbursements for each account, and shows the balance of the fund.

2. Set up supplier records:

Decide how you want to establish supplier records for your petty cash administrators. Consider the following two approaches and set up supplier records with the approach that best meets your business needs:

Enter a supplier record for the employee acting as a petty cash administrator. See: Entering employees as suppliers.

Advantages:

• Simple to process initial payment and reimbursements for the fund under the employee's supplier record.

Disadvantages:

• Reconciliation of your GL account may be difficult. For example, if an employee expense report is erroneously charged to the GL petty cash account, the error will not be noticed easily because all entries into the account are done under employee supplier records.

• If the employee who serves as the petty cash administrator has a supplier record with payment method of Electronic (for direct deposit of expense reimbursements), more manual work may have to be done processing a petty cash request. Typically, the petty cash administrator prefers petty cash payment by check to keep petty cash funds separate from personal funds. In this case you need to change the payment method on each petty cash reimbursement request, or set up a separate supplier site with a payment method of Check to use for petty cash reimbursements.

Enter one supplier record named "PETTY CASH" and create a site under this supplier in the name of the employee acting as a petty cash administrator. For example:

Supplier Name: PETTY CASH

Site Name: c/o CLINT EASTWOOD

You may want to create this supplier record with a unique Pay Group or Payment Priority. This can facilitate any special handling you may need to do with petty cash payments.

Advantages:

• Reconciliation of your GL account may be easier. For example, if an employee expense report or supplier invoice is coded in error to the GL petty cash account the error will be noticed easily because all entries into the account are done under one supplier record, PETTY CASH.

• There is no need to change any information in an employee supplier record to accommodate petty cash reimbursements.

• Online query of activity for a petty cash account is simple because all activity for an account is contained under one supplier site name.

3. The petty cash administrator submits a petty cash request to the accounts payable department for the amount of the new fund. The request includes all necessary approvals. The petty cash administrator signs the petty cash agreement or agrees online if you use an electronic template. The accounts payable department provides the administrator with the petty cash reimbursement form and the petty cash reimbursement log.

4. Enter the petty cash request as a standard invoice. Charge the amount to the petty cash GL account. You may want to use a standard invoice naming convention for the initiation of a new petty cash fund. The use of a standard invoice name can assist in research and reconciliation. For example, you may want to use "IPC" for "Initiate Petty Cash" and the date of the request.

5. Pay the petty cash administrator for the fund amount.

Using a Petty Cash Fund

1. The petty cash administrator maintains the cash.

2. Employees submit to the petty cash administrator completed petty cash reimbursement forms and receipts for expenses. The administrator reimburses the employees and maintains a petty cash reimbursement log containing details of the expenses and the accounts that should be charged.

3. When the petty cash administrator needs more cash, the administrator submits to the accounts payable department a petty cash request, a reimbursement log, and the receipts.

4. Enter the petty cash request as a standard invoice. Create invoice distributions for the expense items to the appropriate expense accounts. You may want to use a standard invoice naming convention for the replenishment of a petty cash fund. The use of a standard invoice name can assist in research and reconciliation. For example, you may want to use "RPC" for "Replenish Petty Cash" and the date of the request.

5. Pay the petty cash administrator a check to replenish the fund.

Closing a Petty Cash Fund

Prerequisites

   Establish a formal notification procedure for the administrator to follow if the petty cash fund is to be closed or transferred to another administrator.

   If there is cash remaining in the fund, the administrator returns the cash or writes a check to your company in the amount of the remaining balance.

   To close a petty cash account:

1. The administrator submits a final petty cash reimbursement log.

2. Enter the petty cash log as a standard invoice with an amount of zero since you do not want to issue a payment. Create the following invoice distributions:

• Positive distributions for the expense items to the appropriate expense accounts

• A negative distribution for the amount of the petty cash fund and credit this to the petty cash account

The distribution lines must sum to zero.

Record the amount of any returned cash by creating two invoice distributions in the amount of the returned cash:

• A positive distribution to the Accounts Receivable clearing account

• A negative distribution to the petty cash account

The distribution lines must sum to zero.

You may want to use a standard invoice naming convention for the closure of a petty cash fund. The use of a standard invoice name can assist in research and reconciliation. For example, you may want to use "CPC"for "Close Petty Cash" and the date of the request.

Reconciling Your Petty Cash Account