Keeping track of cash in businesses isn’t always as easy as keeping track of the dollars in your personal wallet. Multiple hands may touch the petty cash box, and for this reason, it’s important to execute petty cash reconciliation carefully.
Let’s take a look at what petty cash reconciliation entails and how financial automation solutions can aid in your reconciliation processes.
Petty cash reconciliation covers steps to verify all transactions that involve petty cash funds.
The primary goal of petty cash reconciliation is to ensure that funds are being spent appropriately and to catch/prevent fraud. The truth of the matter is that many people within an organisation who use petty cash aren’t trained as accountants.
So, they may often fail to properly record the transactions and report them. If this is happening, then it can become complicated to figure out where the money has gone and validate the transactions.
Petty cash reconciliation should be performed at regular intervals to help keep track of the petty cash.
Petty cash reconciliation is one of the many forms of account reconciliation that all serve as a form of internal control. If you’re reconciling accounts manually, it can become time-consuming and tedious.
But, with the aid of finance automation solutions like SolveXia, you can perform account reconciliations in a fraction of the time and with utmost accuracy.
The steps to reconcile petty cash aren’t difficult. They just require attention to detail. Let’s walk through the process:
At the end of your financial period, count the cash on hand to deduce the ending balance for your petty cash account. Note that the starting amount is known as float. You’ll need this figure in step 3.
Go through all receipts where cash was used for payment. Verify that they are approved and complete payments.
After you capture all data from the receipts, document every withdrawal from the petty cash fund. Be sure to categorise and record them in the corresponding expense accounts.
The ending balance from step one should equate to the prior period’s ending balance minus the sum of the withdrawals. If these figures are matching, then all is good.
If you find that the amounts are not equal, then you’ll have to investigate what’s causing the difference. You may need to see who accessed the petty cash, look for missing receipts, or track down if anyone added to the petty cash box without making note of it.
As part of your financial close process, you’ll need to record every transaction that occurred in your general ledger. This way, you can ensure that your financial statements will be correct and up-to-date.
If you notice fraud, then you’ll have to reconsider your processes to prevent fraud moving forward. You’ll also need to replenish the float for the next month’s period.
Petty cash reconciliations aren’t the most complex type of reconciliation, but there are still challenges that can arise. This is especially true if you’re handling everything manually.
Checking internal records versus what was actually spent can take time. Think of it like this – if multiple people are using petty cash for payment and keeping paper receipts, then the first step of performing the petty cash reconciliation process will involve tracking down all the documentation.
Even if you have access to all receipts and paper trails, you may not know why a disbursement was made. If this is the case, then how will you know which corresponding expense account the transaction should be applied to?
And, lastly, when there is actually missing cash, finding the reason for it can become a huge headache. Cash doesn’t have the digital paper trail that credit cards do, so it will require more complex investigation to decipher whether or not there’s fraud occurring.
Although that last section may have felt a bit depressing, don’t fret. There are solutions to make petty cash reconciliation easier.
Let’s review some recommendations:
In most cases, you’ll perform petty cash reconciliation at the end of each month. This is fine, but if possible, try to do it more frequently so you will have less to investigate each time.
Each individual who has access to the cash box should be meticulously trained to understand the process. An easy way to ensure that the keyholder knows the steps involved is to assign the responsibility to someone within your finance team. This way, incentives are aligned to keep track of the cash box closely.
When it comes to financial processes, technology is your best friend. Remove the risk of losing receipts by scanning them into digital form so it’s easier to search, store, and log transactions.
You can also limit the use of cash within your organisation by opting for debit cards instead. This way, you’ll have a bank account statement to verify transactions against your general ledger.
And, you can use an automation tool like SolveXia to do the transaction matching for you in your bank account reconciliation process. You’ll no longer require any manual work when it comes to matching statements to the ledger. Instead, the system will pull all required data and verify records instantaneously.
Petty cash management is a system that keeps track of all petty cash usage. Petty cash is mostly used for one-off purchases. Depending on your business, these use cases could happen frequently or very rarely.
But, no matter how often they are happening, it makes sense to have internal controls in place that can properly oversee who is touching the cash and where it’s going. Your cash account is part of your financial statements, and thus, it’s important that it’s accurately being monitored.
Petty cash should be stored securely and locked. Then, you can assign custodians who are trained adequately to know how to record any use of the cash.
Remember when we said technology is your best friend? We really mean it!
Petty cash automation software exists to take the pain points out of the petty cash reconciliation procedure.
This software automates the management of petty cash so you can reduce the risk of fraud. You get to take advantage of a bank reconciliation template to ensure that cash is being used properly and consistently within the organisation.
All documentation is stored in a centralised location so that internal controls can be upheld. Additionally, petty cash management software will automate the petty cash reconciliation workflow, while ensuring that the necessary management personnel approve of the final status during your financial close.
Account reconciliation of any kind, including petty cash reconciliation, is crucial to ensure that your financial statements are accurate and to spot if fraud is occurring within your business.
While reconciliation used to be a tedious and recurring process, you now have the option to automate the reconciliation process on a recurring basis.
With automation software like SolveXia, you can reconcile accounts faster and more frequently, thereby improving accuracy and reducing the risk of fraud.
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