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January 2009

in this issue

Business Scenario
- Petty Cash


Accounting Tip

Did You Know ?


Sandy's Recommendations

Next Issue - Taxes for the Self-Employed


about e-ccounting

e-ccounting is a monthly newsletter focusing on accounting tips and solutions. Our mission is to educate our clients, students and readers by offering these resources in response to your ongoing questions.

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These tips are not complete answers to complex questions. We therefore recommend, when in doubt, contact the professionals or government agency.

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accountrain is now offering a series of three workshops. Take one, two or all three and save as you learn. The informative and interactive format guarantees a comfortable and fun learning environment.

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1. Understanding How to Read Financial Statements
  • Who's interested in your reports and why
  • Why there's more to the Income Statement than just the "bottom line"
  • What's so important about the Balance Sheet, and
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    Next Session: April 21st - 6PM

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  • Review of common questions, including GST, incorporating and many more
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  • Understanding government requirements
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    Next Session: March 24th - 9am OR
    May 13th - 6 pm

3. Year-end Prep & New Year Planning
  • It's never too late to get organized
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  • How to choose accounting help
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    Next Session: Fall 2009, or as requested.

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  • Business Scenario
    - Petty Cash

  • How do we know if and when we need a petty cash fund?

  • Answer

  • In order to determine if you need a petty cash fund, and how much it should be, ask yourself these questions:

  • Are we having to reimburse staff for small expenses on a regular basis, ie taxi fares?
  • Do we have COD's?
  • Do we incur many small expenses, ie. milk for coffee, cards for staff, donuts for meetings?

  • If so, then chances are your firm would benefit from a petty cash fund. The amount is determined by how often you want to replenish it.

    An average amount is $200, that said, I was responsible for a very active petty cash, with a $1,500 value that was replenished weekly!

    If you find you are going through the funds too quickly, you can increase it's value at any time.

  • Accounting Tip
  • Bookkeeping for the petty cash fund:

    The entry to set up the fund is to create an asset account called Petty Cash. This account will NOT be the account affected once transactions start to take place. The amount of the fund will stay the same unless it is increased (or decreased).

    The entry when replenishing the fund is to code to the proper accounts based on the receipts, for example:

  • food for a meeting - promotion expense
  • taxi chit for overtime - travel expense
  • stamps - postage & courier
  • COD - postage & courier
  • Another good tip. In a hurry, and don't have the time to reconcile the petty cash? Create a "petty cash flow through" expense account and issue approximate amounts of what you may need, ie $175.

    When you have time to reconcile the receipts in the petty cash box, debit the proper expenses and credit the petty cash flow through account.

  • Did You Know ?

  • It's best to issue the cheque to Petty Cash fund (the bank should accept this and they will know you probably want smaller bills), not to the person cashing it. If Jane Doe is responsible for the Petty Cash fund, she shouldn't have cheques made payable to her for several reasons. One being she doesn't want this to be misconstrued as earnings.

    For more Did You Knows?
  • Definition

  • Petty Cash

    Petty cash is a small amount of cash used for expenditures where it is not practical to make the disbursement by cheque due to the amount or timing. The initial fund would be created by issuing a cheque for the desired amount, ie $200. The entry for this initial fund would be to debit Petty Cash (asset account) and credit cash.

    As expenditures are made, the employee responsible for the fund will reimburse employees in return for a receipt. (At any given time the total of cash on hand plus all receipts should equal the original fund).

    When the fund gets low the employee responsible for the fund will request a cheque to reimburse the fund by the exact amount of the total receipts.

    Reconciliation of the petty cash fund is important to capture the expenses on a timely basis.

    For more definitions ...
  • Sandy's Recommendations
  • There are a few suggestions that will assist in maintaining a reconciled fund:

  • One person should be responsible for the fund. (while on vacation, reconcile the fund before and after)

  • The fund should be kept in a safe place, preferably a locked drawer, or locked box.

  • Have a petty cash pad available for the expenses in which the receipt is lost or not available, ie newspaper from a box.

  • Staff may ask for an advance from the petty cash box, for personal reasons. If this is an accepted company policy, have them sign an IOU and date it with the understanding it must be repaid by x date. Another practice may be that if it isn't repaid by the determined date, that it will automatically be removed from their next pay cheque.

  • Reconcile the fund on a regular basis especially at year-end to ensure all expenses are recorded in their proper period.

  • Next Issue - Taxes for the Self-Employed
  • Although this has been discussed in a previous issue, it's worth focusing on again at this time of year.


  • To simplify the tax return in 5 easy steps.
  • What software can help.
  • How this relates to other income.
  • Who can help ensure it's correct.

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