Petty cash is worth being petty about because it’s a part of how your business manages its money. When looking at how to reconcile petty cash, the process is pretty straightforward. But, due to the nature of petty cash, the amount of hands touching it, and the loose structures surrounding it, the reconciliation process can get out of hand quickly.
The good news is, for companies looking to evolve their reconciliation processes, there are automation solutions that make it easy. Let’s take a look at petty cash policy best practices and petty cash accounting procedures.
1. What is a Petty Cash Reconciliation?
2. What are Important Petty Cash Terms?
3. How to Reconcile Petty Cash?
4. What are Problems with Petty Cash Reconciliations?
5. How to Overcome Petty Cash Reconciliation Problems?
6. Debit Cards vs Corporate Cards
7. What is Petty Cash Management?
8. How Does Petty Cash Management Software Work?
9. If Cash is King, Automation Tools are the Castle
Petty cash reconciliation is the accounting process of reviewing petty cash transactions and payment records. The main goal is to ensure that all payments that are recorded actually happened. The records should completely and accurately reflect the uses of the petty cash that has been removed from the cash box.
Petty cash transactions tend to be sporadic and inconsistent, which is why the reconciliation process can become harder than it should be. Petty cash isn’t just a disposable fund, although a lot of employees see it that way. Your accounting team knows that’s not the case.
Before we get into the petty reconciliation process, it’s a good time to review the key terms associated with petty cash, which include:
The petty cash reconciliation process is clear cut to follow. However, since many people treat petty cash as disposable money, records are often misrecorded or not recorded at all. This leaves the accounting team having to become detectives to figure out what happened to the petty cash’s float.
Before we get to how to record petty cash disbursements in a centralised system, let’s review the process:
The petty cash reconciliation process is an integral part to a company’s internal controls to ensure that there is no fraud occurring. Despite the fact that the expenditures may pale in comparison to credit card transactions, they are still important to keep track of.
That’s why organisations are implementing automation tools to help manage their transaction history and reconcile all types of accounts, from petty cash to foreign currency accounts.
Reconciliations often become time-consuming and hard to manage when they are being performed manually. The sheer amount of data and data matching required can quickly bog down your accounting team, taking them away from being able to complete high-value tasks.
The biggest issues that accounting teams face when performing petty cash reconciliations is that they don’t know why a disbursement was made or in the worst case, cash is missing and there’s no understanding as to why or where it went.
When a disbursement is made, an employee is often responsible for documenting the amount and reason, but many employees don’t understand how important petty cash is to accounting teams and expense accounts.
So, they may leave off information or even fail to document the disbursement at all. This could contribute to missing funds for no reason, or missing cash could indicate fraud.
There are inherent challenges that come along with using petty cash. However, they can be minimised through proper oversight and clear cut best practices.
Some best practices are:
Looking for an easier way to reconcile petty cash processes? Finance automation software makes it easy by compiling your transactions, comparing documentation, and updating records accordingly to ensure everything is accurately reflected.
All the while, the solution will dramatically cut down the time it takes to execute account reconciliations. With automation there is increased oversight and no more manual data entry. It also connects, maps, and cleanses data while connecting to all your data systems including legacy systems.
Some organisations may wish to get rid of the petty cash box entirely. But, employees still need access to company money to take care of some of their transactions. In this case, it’s useful to consider alternative options, like debit cards, corporate cards, and credit cards.
Corporate Cards: Corporate cards can’t be the solution because not every employee can have one (there’s no real way to prevent misuse). They are expensive by nature and accounting teams need to wait for statements in order to perform credit card reconciliations.
Debit Cards: A debit card could be a good alternative because you can track every payment made, use them to pay online or in-store (clearly, cash isn’t a feasible online option), and transactions are documented in real-time. Additionally, organisations can set limits based on an individual basis, thereby providing a mechanism for control and oversight.
However, depending on your business, initiating employee debit cards could be considered overkill and unnecessary. Additionally, some vendors may offer incentives for paying with cash and you don’t have to factor in fees. So, it may be worth finding ways to manage petty cash (see below).
Petty cash management refers to the system of recordkeeping to track petty cash uses. Rather than relying on manual oversight, many companies are experiencing digital transformation and incorporating software to help with petty cash reconciliation and petty cash management.
Petty cash management makes it possible for companies to ensure that petty cash uses are appropriate and approved. Without petty cash management, an organisation runs the risk of fraud, theft, and misuse.
Petty cash management software provides a centralised repository for all data related to petty cash uses. The software provides templates for documenting petty cash uses, which will eliminate the likelihood of cash being spent without knowing why, when, or where it went.
All documentation related to petty cash accounts is tracked and securely stored, making it simple for internal personnel to perform audits and reconcile petty cash accounts. Put simply, these systems make it easy to:
Along with petty cash management software, you can utilise financial automation software to reconcile all your accounts to streamline the process, boost efficiency, decrease errors, and provide a way to analyse resource allocation and spending.
The chances are that your employees will need to have access to cash to make one-off payments every now and again.
With proper processes in place and the addition of petty cash management software, you can alleviate your financial team’s burden of having to hunt down where missing cash may have gone. Knowing how to reconcile petty cash is just one of the many types of reconciliations that your accounting team is responsible for performing.
By incorporating a financial automation tool within your organisation, you empower your finance team to accomplish more while having to manually do less. Free up your accounting team’s time to focus on strategy, analysis, and decision-making by letting automation tools do the tedious and time-consuming data-related work.
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