Petty Cash
It is a common need for churches to establish a small Petty Cash fund to make small purchases for the ministry of the church. These expenses could be for coffee and food items, ministry supplies, or one time reimbursements.
Establishing a Petty Cash system needs to take into consideration all of the following Foursquare policies:
- All monies collected by the church are to be accounted for and deposited into the bank account within 48 hours (example: Tithes and Offerings).
- Expenses of the church are not to be reimbursed directly from offerings or fundraising before being deposited into the bank account.
- All expenses are to be authorized by a designated person and 2 signing officers of the church are to scrutinize each expense.
- All income and expenses are to be recorded in the accounting records of the church.
For more details on these policies please refer to the sections in the Foursquare Administrative Manual: Offerings Management, Banking and Signing Authorities, Payment of Bills, Books and Records
Establishing Petty Cash System
1. Purchase a lock box
When you are starting a petty cash fund, you need to buy a lock box that will hold the cash available for use and the receipts for what has been spent.
Have a box big enough to keep all the money and receipts in, but small enough to be inconspicuous and easily hid. These boxes are available at most stationery or office supply stores.
Petty cash boxes should have a lock and be kept out of sight and in a secure place
2. Assign responsibility for the petty cash fund
Assign an individual to be in charge of the petty cash box and account, such as an accounting clerk or an administrative assistant.
The assigned individual is responsible for disbursing petty cash funds in return for original receipts and keeping a log of all the transactions and ensuring all procedures are followed.
3. Determine the withdrawal limit
Petty cash is set up as a convenience for small purchases that do not warrant writing a check. You need to establish the maximum transaction amount to be handled through the petty cash system. Any transaction above that amount can be handled through the normal purchasing process.
For example, a typical church maximum transaction amount for petty cash would be $50 or less. Any transaction above $50 would be processed as a normal account payable.
4. Deposit cash into the petty cash fund
- Note, a typical Petty Cash Float ranges from $100 - $300
Write a check to the individual responsible for Petty Cash in the amount of the Petty Cash float. This person then goes to the bank branch the cheque is written on and cashes it. They are to get small bills and coins to be able to reimburse the receipts given to Petty Cash.
5. Create a petty cash transaction log
The log is a form that records every transaction that goes through the petty cash box. The log can be a simple handwritten accounting log or an online spreadsheet kept up by the individual responsible for Petty Cash. The log needs to include the date the transaction occurred, the description of the transaction and the full amount of the receipt.
The first payment to petty cash should be placed in the log as a petty cash deposit. All receipts will be deducted from this amount.
click here for picture of a Petty Cash Log
6. Establish the petty cash fund in the accounting records of the church
Cash and petty cash accounts are both asset accounts. When initially opening the petty cash fund, cash is simply transferred from one asset account to another with no effect on the balance of the church's assets.
The first transaction will be to establish the petty cash float in the accounting records. It will be a credit from the bank account and a debit to petty cash.
Petty Cash Dr. $100
Bank Account Cr. $100
In this stage, there has been no actual expense because the money has simply been transferred from one account of the company to another, so the total assets of the company are unchanged.
7. Start using the money
The person responsible for the petty cash will require a receipt for every petty cash transaction. On the receipt they will write who made the purchase and the date the receipt was given, and then place the receipt in the petty cash box.
The purchaser is reimbursed for the exact amount on the receipt.
Managing Petty Cash Expenditures
1. Replenish the cash
To replenish the petty cash the accounting clerk will be given the petty cash box with the money and receipts enclosed. The accounting clerk will make sure that the receipts and the remaining cash balance (Petty Cash Float less receipts = cash remaining in the box).
Example: Float = $200 Receipts = $135.50 Cash in box = $64.50
2. Account for the petty cash transactions
The accounting clerk will add the receipts together in each expense category and enter the summary into the accounting records. Common expense categories where petty cash is used include: postage, office supplies, transportation, coffee supplies.
Entry to write petty cash replenishment cheque:
Various Expense accounts – Dr. $$$ (total from Petty Cash form)
Bank account – Cr. $$$
A cheque is written to the person responsible for the petty cash in the amount of the receipts that were submitted, it is cashed and put in the petty cash box. Petty cash has now been replenished.
***Please Note: Once the first cheque is written to establish the petty cash funds, no further entries are made to the Petty Cash account. The balance of the Petty Cash account should always remain the same amount as the first cheque written. All entries to reimburse the petty cash are charged to expense accounts.