Ask the Expert – Petty Cash Fund versus Expense Reimbursement
Issue 3.21 August 24, 2004
The decision on which alternative is better depends on the flow within the business. Is the money spent from one central location, or is it spent while out of the office?
Q – Can you please explain the difference between a petty cash fund and an expense reimbursement, including when each is most appropriate?
A – As a general rule, petty cash funds are only appropriate when the money will be spent from one central location (i.e. from the office). Expense reimbursement works best when the money is spent in various locations.
From a processing standpoint, expense reimbursement is easier. The money is spent, the person who will be reimbursed submits an expense report with receipts attached, and a check is issued for that exact amount. The coding of the check is split as it is entered based on the types of expenditures.
With a petty cash fund, the initial check is written to cash and coded to a petty cash bank account (i.e. cash on hand). As money is spent, receipts are accumulated. The total of the receipts and cash should always equal the amount of the fund. When the cash gets low, the receipts are removed and a check is split as it is entered based on the receipts. The check is then cashed and the money replenished. Note: unless the petty cash fund amount is increased or decreased, there should not be any additional entries to the petty cash fund general ledger account.
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Bonnie J. Nagayama, CPA (925-247-0100) has been featured by Intuit in their QuickBooks Advisor Spotlight and frequently teaches and consults on using QuickBooks to its maximum advantage. For a FREE weekly newsletter of QuickBooks tips and tricks, plus many free and low cost QuickBooks resources visit www.4luvofbiz.com.
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