How to Perform a Petty Cash Reconciliation

Petty cash is a small amount of money businesses keep on hand for minor, immediate expenses, such as office supplies, postage, or small employee reimbursements, that do not warrant issuing a check or using a credit card. Maintaining financial accuracy in its management is important for overall financial health and accountability. Proper handling of petty cash ensures these incidental costs are tracked effectively, contributing to transparent financial operations.

Understanding Petty Cash Records

Before reconciliation, gather and understand the petty cash records. A petty cash fund operates on an imprest system, starting with a fixed amount (e.g., $100 to $500) that is replenished as cash is spent. This fixed amount is the baseline for all transactions.

The petty cash log or voucher documents every transaction. This log should detail the date of the expenditure, the amount spent, the specific purpose of the expense, and the recipient of the funds. It often includes a signature of authorization. Each entry in this log should correspond to a physical receipt.

Collecting and retaining all receipts is important. A valid receipt typically includes the date of purchase, the amount paid, the vendor’s name, and a clear description of the item or service acquired. These receipts serve as proof of expenditure and are necessary for verifying transactions during reconciliation.

Performing the Reconciliation

Once records are assembled, the reconciliation process can begin. The first step involves physically counting the remaining cash in the petty cash fund. This count must be precise, including all bills and coins in the petty cash box.

Next, sum the total documented expenditures by reviewing the petty cash log and the attached receipts or vouchers. Each entry in the log should be cross-referenced with its corresponding receipt to confirm the amount and purpose. This step calculates the total disbursed from the fund.

The core of the reconciliation involves comparing these totals. Add the remaining physical cash to the total documented expenditures. This combined figure should ideally equal the original fixed amount of the petty cash fund. If these two figures match, the petty cash fund is in balance.

Finally, document the results of the reconciliation. This record should clearly state the date the reconciliation was performed, the name of the person who completed it, and the calculated balance. This documentation provides an audit trail and confirms the accuracy of the fund.

Resolving Discrepancies

When the reconciliation reveals that the physical cash plus documented expenses do not equal the initial fund amount, a discrepancy exists. The first action is to re-count the physical cash and re-sum the receipts to catch any simple mathematical errors. This double-check often resolves minor imbalances.

If the discrepancy persists, carefully review the petty cash log against each receipt to identify any missed entries, incorrect amounts recorded, or completely missing documentation. Common reasons for discrepancies include mathematical mistakes, lost or misplaced receipts, unrecorded transactions, or even incorrect change given during a transaction. A thorough comparison helps pinpoint the exact source of the imbalance.

After identifying the cause, make appropriate adjustments to the petty cash log to reflect the actual balance. If a discrepancy, such as a shortage or overage, cannot be resolved after thorough investigation, it must be documented. These adjustments might involve noting a “cash over” or “cash short” amount. Document these adjustments within the petty cash records, often requiring an explanation for audit purposes.