{
  "question_id": "CG-P1B-FULL-099",
  "slug": "how-petty-cash-is-reconciled-alongside-the-bank-reconciliation",
  "display_title": "How is petty cash reconciled in relation to the bank reconciliation?",
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  "summary": "Petty cash is reconciled against the fund's established amount, not the bank statement: count the cash, total the unreimbursed vouchers and check that together they equal that amount. The two reconciliations meet only where money moves between the bank account and the fund: when the fund is set up, replenished or resized from the bank account. Spending paid out of the box never reaches the bank, so its absence from the statement is not a reconciling item.",
  "body": "## What does a petty cash reconciliation prove?\n\nOpenStax's Principles of Accounting section on petty cash describes the fund as containing a fixed amount of cash that is replaced as it is spent, so that the cash in the box plus the receipts for purchases should always equal the fund's balance; a fund run this way is an imprest fund. The reconciliation, which AccountingTools' guide to reconciling petty cash calls a formal review of the petty cash records and the cash remaining in the fund, proves that equation.\n\nThe fund has its own ledger account. AccountingTools' article on the imprest system says the fixed amount is stated in a separate general ledger account, and OpenStax's petty cash section says that balance stays on the balance sheet at the established amount unless management changes the size of the fund. Spending never moves it; the proof shows that the cash and vouchers behind it are still all there.\n\n### What if the fund has no fixed amount?\n\nSome businesses run petty cash as a moving balance: each payment is entered in the books when it is made, and the box is topped up irregularly. The proof then compares the count with a computed figure of the kind AccountingTools' article on the cash over and short account describes: the beginning book balance of cash on hand, plus or minus the cash transactions recorded during the period. Enter any voucher not yet recorded before comparing; a difference that remains means what it would in an imprest fund.\n\n## How do you count the fund and find the difference?\n\nWork through the proof in this order:\n\n1. Take the fund's established amount from the ledger or the petty cash policy.\n2. Count the cash in the box and subtract it from the established amount, as AccountingTools' guide to reconciling petty cash directs; the result is what the vouchers should account for.\n3. List and total every voucher in the box. AccountingTools' petty cash procedure says each voucher records the date, amount, purpose and account classification, and should be signed by the person who received the cash.\n4. Add the counted cash to the voucher total and compare the sum with the established amount.\n5. Investigate any difference before recording anything, as the same reconciling guide says.\n\nCounting the cash alone makes every fund look short by exactly the vouchers it holds. That gap is normal operation, not a loss.\n\n### What does a proof look like in practice?\n\nA fund set at 500.00 is proved at month end:\n\n| Item | Amount |\n|---|---|\n| Cash counted | 216.40 |\n| Voucher: postage | 64.00 |\n| Voucher: office supplies | 118.35 |\n| Voucher: courier | 45.00 |\n| Voucher: staff refreshments | 52.25 |\n| Total vouchers | 279.60 |\n| Cash plus vouchers | 496.00 |\n| Established amount | 500.00 |\n| Difference, short | 4.00 |\n\nThe investigation finds no missing voucher and no counting error, so the 4.00 is an unexplained shortage. Restoring the cash to 500.00 takes 500.00 − 216.40 = 283.60: the 279.60 of vouchers plus the 4.00 shortage.\n\n## How does the replenishment enter the books?\n\nOpenStax's petty cash section says funds are typically replenished at a fixed interval, and that many small businesses do it monthly so that expenses are recognized in the proper accounting period. A fund that runs low before then can be replenished in the same way whenever more cash is needed, after the same proof. AccountingTools' reconciling guide says replenishment typically follows the reconciliation.\n\nThe draw restores the fund to its established amount. AccountingTools' petty cash procedure has the check written for the amount needed to fund petty cash to its stated limit, and OpenStax's petty cash example says a shortage needs to be replaced from the checking account. So the draw is the voucher total plus any shortage, less any overage. A fund topped up by a round figure, or to whatever was counted, drifts until the proof has nothing fixed to compare with.\n\nUnder the imprest method nothing is recorded when cash leaves the box; AccountingTools' petty cash accounting article says there is no journal entry at that point. Its imprest system article says expenses are recognized when the replenishment is made from the company checking account, debiting the expenses the custodian's receipts support and crediting cash. For the example, on the imprest method:\n\n| Account | Debit | Credit |\n|---|---|---|\n| Postage expense | 64.00 | |\n| Office supplies expense | 118.35 | |\n| Delivery expense | 45.00 | |\n| Staff refreshments expense | 52.25 | |\n| Cash over and short | 4.00 | |\n| Checking account | | 283.60 |\n| Total | 283.60 | 283.60 |\n\nThe Petty Cash account is not touched and stays at 500.00. Setting the fund up was one entry, which AccountingTools' petty cash accounting article gives as a debit to petty cash and a credit to cash, here 500.00 from checking.\n\nRecord each payment once. A moving-balance fund enters each expense when the payment is made, so its top-up is only a transfer, debit Petty Cash and credit Checking. Posting the vouchers' expenses again at replenishment records the same spending twice, and each entry looks correct on its own. Use one method per fund.\n\n## Which petty cash movements appear in the bank reconciliation?\n\nOpenStax's section on bank reconciliations describes the reconciliation as explaining any differences between the checking account balance in the bank's records and in the company's own. Only these petty cash events move money through the checking account:\n\n- **Setting up the fund.** OpenStax's petty cash example establishes the fund by cashing a check from the checking account.\n- **Each replenishment.** AccountingTools' imprest system article makes replenishments from the company checking account.\n- **Changing the fund's size.** OpenStax's petty cash section records an increase and a decrease against cash, which includes checking accounts; an increase drawn from the checking account, or a reduction deposited back into it, is a bank item like any other.\n\nEach is one check or transfer, recorded in the books when it is made. If it has not left the bank account by the statement date, it is an outstanding check, which OpenStax's bank reconciliation section defines as one written and deducted in the company's records but not yet cashed, so the amount has not been removed from the bank account. Performing the bank reconciliation itself is a separate question.\n\n## Why does petty cash spending never show on the bank statement?\n\nThe fund exists to keep small purchases away from the bank: OpenStax's petty cash section explains that writing a check for a small purchase is not efficient in time or cost. Under the imprest method those payments are not posted to the checking account one by one either; they reach the books through the replenishment entry, as one credit to checking matching the one check the bank pays. The count, the vouchers and any cash over or short also stay inside the fund and the expense accounts.\n\nA reconciling item is a difference between the bank's record and the books for the checking account. Payments out of the box are in neither record of that account, so there is nothing to reconcile, and listing their absence as a reconciling item is a mistake.\n\n### How does the flow look across a month?\n\n| Date and event | What the books record | Reaches the bank? |\n|---|---|---|\n| June 1: fund set up by a 500.00 check | Petty Cash up 500.00, Checking down 500.00 | Yes, when the check is cashed |\n| June 3 to 27: postage, supplies, courier and refreshments paid from the box, 279.60 | Nothing; the vouchers go into the box | Never |\n| June 30: proof finds cash 216.40, vouchers 279.60, short 4.00 | Nothing until the replenishment | Never |\n| June 30: replenishment check for 283.60 | Expenses 279.60 and cash over and short 4.00; Checking down 283.60 | Yes, when the check is cashed |\n\nThe two checks are the only petty cash items that can appear on June's bank reconciliation, and only as outstanding checks if one has not cleared by the statement date.\n\n## How is the petty cash account proved at period end?\n\nUnder the imprest method the ledger carries the established amount. That figure is supported as cash only when the period-end replenishment has been recorded, so the period-end proof shows cash (plus any replenishment check not yet cashed) equal to it. If vouchers are still in the box at the period end, the proof shows the fund is intact, but the ledger overstates cash and understates the period's expenses by the voucher total. A ledger account left at its original funding and never compared with a count carries a cash figure nobody has checked.\n\nAccountingTools' petty cash procedure has the custodian complete a reconciliation form listing the cash on hand, the vouchers issued and any overage or underage; an accounting staff person reviews and approves it, and it is filed with the vouchers attached. To stand as evidence, the proof records:\n\n- The fund, the date of the count and the established amount\n- The counted cash\n- Each voucher and the voucher total\n- The difference, with its explanation or the entry that recorded it\n- Who counted and who reviewed, with both signatures\n\nProve the fund at every replenishment and at every period end for which the balance is reported. AccountingTools' reconciling guide says to reconcile more often when errors keep recurring.\n\n## What happens when a replenishment straddles the period end?\n\nThe vouchers' spending belongs in the accounting period it relates to. Where the replenishment stands at the period end decides what each reconciliation shows:\n\n| Where the replenishment stands | What each reconciliation shows |\n|---|---|\n| Check written, recorded and cashed into the fund before the period end | The fund holds the full amount in cash; the check has cleared, so the bank reconciliation carries nothing for it |\n| Check written and recorded before the period end, not yet cashed | The expenses are in the period; the check has taken the vouchers' place in the fund, so the proof is cash plus the uncashed check, and the bank reconciliation lists the check as outstanding until it clears |\n| Replenishment made after the period end | The proof is cash plus vouchers and the bank reconciliation shows nothing, but the vouchers' spending is missing from the period's expenses because the replenishment records it in the next period, and the Petty Cash balance overstates the cash held by the same amount |\n\nAccountingTools' petty cash accounting article describes the replenishment check being swapped for the receipts, which is why the uncashed check counts in the proof. To keep the spending in its period, replenish on the last day while the period is still open; keeping expenses in the proper period is the reason OpenStax's petty cash section gives for replenishing monthly. Once the period is closed, the replenishment is recorded on its actual date in the next period. The closed period's petty cash balance and expenses then stay misstated by the voucher total; if the amount matters, raise it with whoever prepares the accounts.\n\n## Who should hold, count and review the fund?\n\nAccountingTools' petty cash procedure divides the duties among employees whenever practical:\n\n- **Custodian.** The custodian keeps the fund locked whenever it is not in use, safeguards the cash and pays it out, while another employee approves the spending and reviews the supporting documentation.\n- **Recorder and reconciler.** A separate accounting employee records replenishments and reconciles the fund, and an accounting staff person reviews and approves the reconciliation form.\n- **Surprise counter.** Someone independent of these duties performs periodic surprise counts.\n\nWith few staff, someone other than the custodian should still count the fund or review and approve the reconciliation form. A proof prepared only by the person holding the cash gives no assurance. Where the owner both holds the fund and keeps the books, an outside bookkeeper or accountant can take the surprise count. Running the fund day to day, including approving and documenting payments, is a separate question.\n\n## How is a difference found in the proof corrected?\n\nThe investigation decides which of two things the difference is, and each is recorded differently.\n\n### What if a voucher was never presented?\n\nA receipt that turns up (left in someone's wallet, or never handed in) is spending, not a loss. Attach the original receipt, or other evidence of the expenditure, to a voucher signed by the person who received the cash, as AccountingTools' petty cash procedure calls for. Have it approved by someone other than the custodian, and include it in the replenishment under its own expense account, so no shortage is recorded. A voucher written after the count with no receipt or other evidence does not explain the difference; record the amount as an unexplained shortage. If the shortage was already booked and a voucher supported this way turns up later, move the amount out of cash over and short:\n\n| Account | Debit | Credit |\n|---|---|---|\n| Delivery expense | 4.00 | |\n| Cash over and short | | 4.00 |\n| Total | 4.00 | 4.00 |\n\nFile the late voucher with the reconciliation form for the proof whose shortage it explains. Do not put it back in the box or include it in a later replenishment, or its expense is recorded twice. Nothing passes through the bank, because the cash was already replaced.\n\n### What if a shortage has no explanation?\n\nAccountingTools' reconciling guide says to charge unexplained differences to an expense account set aside for that purpose. Its article on the cash over and short account records a shortage as a debit to cash over and short, an expense, and a credit to petty cash or cash; an overage is a debit to cash and a credit to cash over and short. In an imprest fund the shortage goes into the replenishment entry, as in the example, with the credit to checking; in a moving-balance fund the credit is to Petty Cash, bringing the ledger down to the count. An unexplained shortage is also a custody question: OpenStax's petty cash section warns that a fund that is consistently short may signal that the account is not properly controlled.\n\nOther errors are reversed: an expense recorded both when paid and at replenishment is removed with the opposite entry, and a voucher posted to the wrong account is moved to the right one.\n\n## What changes with several funds or a fund topped up from takings?\n\n### What if there are several funds?\n\nAccountingTools' petty cash system article sets a fund size at each location and has an accounting person check whether each box's cash and receipts match the original funding established for that box. Prove each fund separately against its own amount. A single ledger balance should equal the sum of the established amounts, for example 300.00 plus 200.00 for a 500.00 balance, and is supported only when every fund's proof is in hand; a surplus in one fund does not cover a shortage in another.\n\n### What if the fund is topped up from takings?\n\nWhen a fund is replenished from cash sales instead of a bank payment, the money never passes through the bank, so its replenishments never appear in the bank reconciliation; only a setup or resizing drawn from the checking account does. The top-up is proved against the takings record instead: the day's recorded takings equal the cash deposited plus the cash moved into the fund. Record the takings in full, record the top-up once as the replenishment entry with its credit to the takings cash rather than to checking, and record the deposit at the amount actually banked. Counting the moved cash in both the till and the fund, or recording the deposit at the full takings figure, counts it twice. Counting the till against sales is a separate question.",
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