Cash Receipts, Cash Payments, and Banking Procedures Chapter 9 Cash Receipts, Cash Payments, and Banking Procedures Section 2: Cash Payments Section Objectives Record cash payments in a cash payments journal. Post from the cash payments journal to subsidiary and general ledgers. Demonstrate a knowledge of procedures for a petty cash fund. Demonstrate a knowledge of internal control routines for cash. The sixth objective of the chapter is to explain the procedures of using a petty cash fund.

The Petty Cash Fund Let’s discuss the use of a Petty Cash fund.

Demonstrate a knowledge of procedures for a petty cash fund. Objective 6 Demonstrate a knowledge of procedures for a petty cash fund. Remember, for good internal control, all cash payments should be made by check.

Most businesses use a petty cash fund to pay for small expenditures with currency or coins. Petty cash funds are set up to make payments for purchases of small items like postage or COD items.

Establishing the Fund Let’s look at the procedures to establish the fund.

The amount of the petty cash fund depends on the needs of the business. Usually the office manager, cashier, or assistant is in charge of the petty cash fund. A fund is established by writing a check to the order of the person who will be in charge of the fund.

The Style Shop’s cashier is responsible for petty cash The Style Shop’s cashier is responsible for petty cash. The Style Shop wrote a $175 check to the cashier, who cashed the check and put the currency in a locked cash box. The cashier of The Style Shop is responsible for the petty cash in the petty cash box.

Debit Petty Cash Fund in the other Accounts Debit section and enter the credit in the Cash Credit column. Here is the journal entry to establish the petty cash fund. Petty Cash Fund is debited and Cash is credited for $175.

Making Payments from the Fund Let’s record payments from the fund.

What is a petty cash voucher? QUESTION: What is a petty cash voucher? A petty cash voucher is a form used to record the payments made from a petty cash fund. ANSWER: A voucher is used for all disbursements out of the fund.

The person receiving the funds signs the voucher. The person who controls the petty cash fund initials the voucher. The voucher should be signed by the person receiving funds.

A petty cash voucher shows: NOTE: This form must be computer processed or filled out in black ink. DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies 129 16 25 Total 16 25 RECEIVED THE SUM OF Sixteen DOLLARS AND 25/100 CENTS SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/-- Metroplex Office Supply Co. Voucher number A pre-numbered voucher is used for good internal control.

A petty cash voucher shows: NOTE: This form must be computer processed or filled out in black ink. DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies 129 16 25 Total 16 25 RECEIVED THE SUM OF Sixteen DOLLARS AND 25/100 CENTS SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/-- Metroplex Office Supply Co. Amount Amount of the payment is recorded.

A petty cash voucher shows: Purpose of expenditure NOTE: This form must be computer processed or filled out in black ink. DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies 129 16 25 Total 16 25 RECEIVED THE SUM OF Sixteen DOLLARS AND 25/100 CENTS SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/-- Metroplex Office Supply Co. Purpose of expenditure The purpose of the funds is listed.

A petty cash voucher shows: NOTE: This form must be computer processed or filled out in black ink. DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies 129 16 25 Total 16 25 RECEIVED THE SUM OF Sixteen DOLLARS AND 25/100 CENTS SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/-- Metroplex Office Supply Co. Account to debit The account which needs to be debited is written in along with its account number.

Replenishing the Fund The total vouchers plus the cash on hand should always equal the amount of the fund–$175 for The Style Shop. Replenish the petty cash fund at the end of each month or sooner if the fund is low. The total vouchers plus the cash on hand should always equal the amount of the fund. The fund should be “replenished” at the end of each month or sooner if the fund is low.

Internal Control of the Petty Cash Fund The amount of the funds should be no more than one month’s needs.

The following internal control procedures apply to petty cash: Use the petty cash fund only for small payments that cannot conveniently be made by check. Limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund. Write petty cash fund checks to the person in charge of the fund, not to the order of "Cash." Internal controls for petty cash include using only for small payments, limiting the amount, not writing checks to “Cash.”

The following internal control procedures apply to petty cash: Assign one person to control the petty cash fund. This person has sole control of the money and is the only one authorized to make payments from the fund. 5. Keep petty cash in a safe, a locked cash box, or a locked drawer. 6. Obtain a petty cash voucher for each payment. The voucher should be signed by the person who receives the money and should show the payment details. This provides an audit trail for the fund. Other internal control procedures include: assigning it as one person’s responsibility, keeping cash secure, and obtaining vouchers for payment to provide an audit trail.

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