Small businesses have some cash in hand to cover smaller expenses. From employees’ lunches to paying for office stationery and post charges, the cash can be of help. When we talk about it in accounting and bookkeeping terms, the cash is known as petty cash or petty cash book. As a small business, you will find this book helpful in many aspects. This article is about explaining what petty cash is and how it can benefit your business. If you are interested in digging deep into the term, keeping reading this article!
What is Petty Cash in Accounting?
Petty cash is a small amount of cash businesses keep to cover smaller expenses. The amount is kept in a separate fund that can be used to pay for smaller purchases and expenses. Having a petty cash account permits you to keep away from the bother of composing a check. The money takes care of costs like little office supply buys, worker snacks, and postage and conveyance expenses.
Despite being small, you should not take it lightly. Managing your petty cash account can bring along numerous benefits, which are discussed in this article. According to International Reporting Standards (IRS), You need to fill out a slip every time you use this cash. Moreover, obtaining a receipt for all petty cash purchases is wise, no matter how small.
Advantages of Petty Cash for Your Business:
As discussed, petty cash can have numerous benefits if managed well. The IRS put considerable emphasis on managing it well. To mention the advantages properly, lets us dive deep into the next portion.
1. Systematic recording:
The accountants often need minor information to prepare financial and budget reports. These reports or statements are incomplete without these smaller details. With a petty cash account in place, you can ensure recording even the smallest of transactions.
The petty cash book records the minor expenses of businesses properly and systematically. It is necessary to manage it well, being a helpful element in providing necessary numbers and accounting data. Get in touch with expert bookkeeping and accounting firms in Dubai to manage the account according to the IRS.
2. Assistance for cashier:
A petty cash account is managed and prepared by the petty cashier. It relieves the main cashier since it saves his/her time and effort. The main cashier can focus on the other important activities and financial transactions of the business.
Moreover, the account provides information about other payments made under different heads. With an easier and quick approach to such data, a petty cashier brings more assistance to the main cashier.
3. Helpful in controlling operations:
One of the major reasons petty cash is important is that it compares two financial periods’ expenses. How well are you doing today compared to the previous accounting period? The answer is provided by managing a petty cash book.
If your current position is a deficit, you can control your expenses and business operations. The management can take cost-controlling decisions to put a break to the overspending. All this is possible when you effectively look after your petty cash book.
4. Helps in preparing cash books:
Preparing financial statements and cash books often takes the smallest of details to be on the table. When it comes to preparing the main cash book, the story is no different. Accountants have to ensure they have the smaller expense details in hand when preparing cash books. The petty cash account provides these details.
Since it records smaller transactions and payments, accountants can easily access minor details. Preparation of main cash books is easier and quicker with the help of petty cash insights. Ensure effective cash book preparation by hiring the best accounting firms.
5. Small purchases are easier:
You don’t need to create an SOP for making smaller purchases when you have petty cash in the room. Small business transactions are easier and quicker with this cash book now. It would be time-consuming and inappropriate to make a check for small purchases. You don’t know the amount required if you are taking an employee out for coffee. To cover such cases, petty cash is the best option.
6. Improved day-to-day operations:
Another major advantage of petty cash is it helps you in managing your daily operations. Since you need cash for running smaller operations, the petty account can help you in this matter. It is necessary to manage and keep track of the cash used for smaller operations, as it helps in improving your daily operations.
Restructure your accounting framework with expert accounting firms!
The accounting department of any business carries enormous importance. From preparing financial documents to making strategic corporate decisions, the accounting section leads your business. Make sure you have the best accounts personnel on board when undertaking operations. Get in touch with expert bookkeepers to streamline your business operations.