Paying an expense with petty cash (setting up a petty cash account)

Modified on Wed, Jan 9, 2019 at 1:46 PM

Setting up the Petty Cash Account

Before expenses can be paid with petty cash a cash account must be set up in the General Ledger to hold the petty cash balance (or the amount of cash in the petty cash drawer/box)?

In order to set up the account go to Accounts and create a new account as a type Asset / Checking. 

An opening balance must also be placed in to the account, this the amount of petty cash being first placed into the box.  This can be done as a journal entry.  The entry would be a debit to the new petty cash account and credit to wherever the money is coming from. 

For example, let us say that I am starting a new petty cash drawer and I want to start it with $200.00.  I need to withdraw this $200 from my checking account, so I go to the bank and withdraw the cash and place it into my petty cash box.  The opening balance journal entry would be a debit to petty cash and a credit to my checking account.  Whenever I replenish the petty cash I would do the same entry.  If I am the owner of the company and I am taking cash out of my pocket to start the petty cash drawer then the entry would credit an account such as Owner's Equity (it is recommend that the user check with their accountant to determine the correct credit account in this case).

Paying out of Petty Cash

When an employee pays out of petty cash they should leave a hand written note or petty cash receipt (books are available at most office supply stores) in place of the cash taken out.  This will be helpful in balancing the drawer when necessary.  To enter the cash withdraw into Design Manager, create an operating expense under the vendor that is being paid or create a one-time vendor.  Put in the date as the invoice number, the invoice date, and use the appropriate expense account-- press the hand check button, put the petty cash receipt number into the check number (if not using petty cash receipts, then use the date in the check number, minus the slashes, or come up with any unique number). 

 For example, let us say we are paying a pizza delivery person $20.00.  When we pay the cash we would take the $20 out of the cash box/drawer and fill out a petty cash receipt (and staple the pizza receipt to the petty cash receipt if one can be obtained).   In Design Manager create a one-time vendor, in the name put in Pizza Delivery (the address does not need to be filled out).  Create a new operating expense, put the date both in the invoice number and the invoice date, add a new expense account, use an expense account (?Meals and Entertainment? would be good for our example) and type in $20.00.  Press the Hand Check button type the petty cash receipt number into the check number, fill in the date and choose the petty cash account