When the petty cash fund is replenished the petty cash account is credited?

Since in accounting total debits must equal total credits, a “Cash Over and Short” account is used for balancing entries when the float (i.e., the total initial fund amount) does not match the sum of the petty cash vouchers/receipts disbursed in the period.

Debit balance on the Cash Over and Short account (income statement) represents a shortage (expense), whereas a credit means an overage (revenue). A shortage may result from an error (e.g., mistake in calculating change), a receipt not provided by a vendor/employee, or theft.

Regardless of the cause, the fund needs to be topped up back to the float level.

A petty cash custodian should be designated to safeguard and make payments from this fund. At the time the fund is established, the following journal entry is needed. This journal entry, in essence, subdivides the petty cash portion of available funds into a separate account.

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Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box. The receipt should set forth the amount and nature of expenditure. The receipts are known as petty cash vouchers. At any point in time, the receipts plus the remaining cash should equal the balance of the petty cash fund (i.e., the amount of cash originally placed in the fund).

Replenish Petty Cash

As expenditures occur, cash in the box will be depleted. Eventually the fund will require replenishment. A check for cash is prepared in an amount to bring the fund back up to the original level. The check is cashed and the proceeds are placed in the petty cash box. At the same time, receipts are removed from the petty cash box and formally recorded as expenses.

The journal entry for this action involves debits to appropriate expense accounts as represented by the receipts, and a credit to Cash for the amount of the replenishment. Notice that the Petty Cash account is not impacted — it was originally established as a base amount, and its balance has not been changed by virtue of this activity.

Cash Short and Over

Occasional errors may cause the petty cash fund to be out of balance. The sum of the cash and receipts will differ from the correct Petty Cash balance. This might be the result of simple mistakes, such as math errors in making change, or perhaps someone failed to provide a receipt for an appropriate expenditure. Whatever the cause, the available cash must be brought back to the appropriate level.

The journal entry to record full replenishment may require an additional debit (for shortages) or credit (for overages) to Cash Short (Over). In the following entry, $635 is placed back into the fund, even though receipts amount to only $615. The difference is debited to Cash Short (Over):

The Cash Short (Over) account is an income statement type account. It is also applicable to situations other than petty cash. For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers. If a surplus or shortage is discovered, the difference will be recorded in Cash Short (Over); a debit balance indicates a shortage (expense), while a credit represents an overage (revenue).

Increasing the Base Fund

As a company grows, it may find a need to increase the base size of its petty cash fund. The entry to increase the fund would be identical to the first entry illustrated; that is, the amount added to the base amount of the fund would be debited to Petty Cash and credited to Cash. Otherwise, take note that the only entry to the Petty Cash account occurred when the fund was established.

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Did you learn?What is the benefit of a petty cash system?Be able to explain the operation of a petty cash system.Be able to explain the enhancement to internal control that results from a petty cash system.Know how to prepare entries to establish and reimburse a petty cash fund.Understand the importance of measuring cash short and over.

The custodian is responsible for replenishing the Petty Cash Fund on a regular basis or when the cash fund is running low.  Petty Cash is a loan from Banking & Merchant Services, which means the money spent must be replenished at least once to bring the Petty Cash Fund back to its authorized balance.  Before the Petty Cash Fund can be replenished, it must be reconciled by comparing the amount of the authorized Petty Cash Fund balance to actual cash and receipt totals.

Reason for Directive

A Petty Cash Fund provides convenience for small transactions for situations when using a PCard or other payment method is unreasonable.  Banking & Merchant Services is responsible for the stewardship of the University’s cash and investments, including Petty Cash Funds.

Who Must Comply?

All University departments.

Procedures

To replenish a Petty Cash Fund, a custodian must do the following:

1. Create an unencumbered voucher in myUF Marketplace using the UF HR Toolkit – Creating a Check Request for an Unencumbered Payment
2. The voucher should be payable to the custodian using the associated supplier ID number
   • Contact Disbursements to set up a supplier ID at [email protected]
   • The supplier naming convention is “[Custodian Name] for Petty Cash”
3. The expenditure(s) will be recorded against the appropriate departmental ChartField
4. The voucher must be supported by the Cash Fund Activity Log and an image of the receipts must be attached

Please note: Commitment Control/General Ledger are not charged for a Petty Cash Fund expenditure until the Petty Cash Fund is replenished.  Once the voucher is created as part of the replenishment process, the payments will be reflected in the system and will therefore show up under the project purchases, if applicable.

UF’s Disbursement Services website provides detailed instructions on how to create an unencumbered voucher. 

Note that commitment control/PeopleSoft General Ledger is not charged for a Petty Cash expenditure until the Petty Cash Fund is replenished. Once the voucher is created as part of the replenishment process, the payments will be reflected in the system (and will therefore show up under the project purchases, if applicable).  

The department should keep all original receipts for auditing purposes in accordance with UF record retention requirements (as the rules for record retention depend on the type of funds used and the nature of the information, please contact the Records Management Office at 392-4180 for more information).  

Original receipts must be provided by departments when seeking reimbursements for their Petty Cash Fund. A “Replacement Receipt Form” must be completed and signed by both the supervisor and an authorized employee in the case of a missing or lost receipt. 

Is petty cash debited or credited when replenished?

What happens when the petty cash fund is replenished?

Is petty cash credited or debited?

What causes a petty cash account to be credited?