Cash might be king but in the days of digital some business owners wonder, ‘Should I still use petty cash?’
With the ease of card and mobile transactions, you’d be forgiven for thinking that petty cash is a relic of old school business. But it can still have a place in managing a modern small business.
Whether you’re a sole trader or a limited company, having petty cash is useful for your business’s small, unexpected expenses.
What is it?
Petty cash, as the name suggests, is a small amount money that’s available for unplanned purchases. Often stored in a locked box, t is usually kept by a bookkeeper or whoever looks after financial matters.
That said, some businesses don’t have an individual keeping financial records on site, so they choose a trusted employee to look after it.
The funds are usually used for minor expenses; for example, stationery or office supplies.
The different types
Petty cash is used for a variety of reasons. It can be classed as general, discretionary, emergency and ‘imprest’.
- General petty cash: This is a fund of usually no more than £200. It’s set aside for a business’s usual overheads, such as stationery.
- Discretionary petty cash: This is money set aside for use at the discretion of a team leader or manager. They use it as they see fit to buy items or services to boost staff morale or promote a positive working environment.
- Emergency petty cash: If a sudden fault occurs in the business, such as broken equipment or damage to the premises, emergency petty cash is used.
- Imprest petty cash: An unusual name, but this is for spending on fixed amounts of small expenses that employees might need. For example, buying rail tickets for employees who might need to attend regular meetings where the cost remains the same.
How to manage it
The easiest way is to withdraw money from a business bank account. The employee responsible for the fund must then keep records of what has been spent and on what. The sum of the remaining cash and the receipts should add up to the starting amount, which helps keep a limit on spending. Once the fund has been used, you can use additional money to top up the fund.
As of April 2022, HMRC has advised that it does not require individual transactions recording if you use Making Tax Digital for VAT. The transactions can be recorded as a single purchase. Petty cash is administered in your accounts payable.
Should you still use petty cash?
You pays your money and you takes your choice! It really is up to you whether to use physical money. Normally, it’s easier for your employee to keep track of what’s in the fund, especially if you’re buying small items for a few pounds. Indeed, some shops may not offer digital payments for such small items, such as a pint or two of milk.
However, that doesn’t mean you have to use cash. There are digital alternatives.
- Debit or gift cards: Using a card that requires topping up is similar to using physical funds. One person can be responsible for looking after the card and its use. This logs transactions, so keeps records automatically. Once the limit is reached, it’s topped up.
- Credit cards: You can issue cards to employees who regularly require petty cash and set a limit to ensure spending is capped. This method can take away the need to have a single individual responsible for small payments. The cards can be synced with accounting software, such as Xero.
What to do next
If you need help understanding how to manage petty cash or whether to choose a digital alternative, you can speak to the team at Concept Accountancy. Fill in the form below or call 0191 603 1760. We deal with businesses across the UK, so please don’t hesitate to contact us with any questions about your business accounts or to find out how we can help your business.