Petty Cash Journal

What is a Petty Cash or Petty Cash Journal?

Petty cash, as the name says, is a small amount of cash kept on hand. It is used for minor or small expenditures( mostly infrequent) when writing a cheque is not practical. Some common examples of such expenses are cab fares, Fuel expenses, office supplies or expenses related to Mail services.

A budget is assigned for Petty Cash, depending upon the organisation requirement. The budget can vary from 1000 rupees to 10000 rupees. A custodian, an employee within the organisation, is assigned to the petty cash Fund. This person is made responsible for fund dispensing and requesting replenishments.

How to set up a Petty Cash? And how does it operate?

To establish a Petty Cash, an initial fund is assigned. Let’s assume that a cheque of 5000 INR is provided for setting up the Petty Cash, under a custodian.

  1. The Journal Entry for the first transaction would be:
Account NameDebitCredit
Petty CashINR 5000
To Bank AccountINR 5000

Now, we have a Petty Cash fund of 5000 INR. The custodian now can disburse this amount in exchange of receipts related to allowed expenditure under the Petty Cash. Let’s say we have the following expenses during the month of April:

  • Fuel – 1200 INR
  • Office Snacks Party – 950 INR
  • Postage or Shipping bill – 250 INR

And at the end of the month, the Petty Cash box has 2400 INR of receipts and 2600 INR of cash

2. Journal Entries of expense transactions would be:

Account NameDebitCredit
Fuel ExpenseINR 1200
Miscellaneous Expense (Office Party)INR 950
Mail Service ExpenseINR 250
Petty CashINR 2400

At the month-end, or when the petty cash fund reaches a minimum balance level, the custodian applies for additional cash for the Petty Cash Fund. In this case, the amount would be 2400 INR. This would bring the fund to 5000 INR.

3. Journal entry for the replenishment of Petty Cash would be:

Account NameDebitCredit
Petty Cash2400
To Bank Account2400

The Petty Cash fund is reconciled periodically to verify that the balance is correct. This is done by calculating the total of all the receipts and matching it with the disbursed fund from the petty cash drawer.

In SAP, the functionality of Petty Cash is handled by Cash Journal via transaction code FBCJ. Next, we will check. how to configure Petty Cash in SAP. This process remains the same in ECC and S4 HANA.