As an accounting major in college, I quickly learned all of the complicated parts of the accounting cycle. I discovered how to input the details of business transactions into a computerized accounting system. At the end of an accounting cycle, such as a month, I became experienced with calculating the revenue for the period. If you’re starting a new business, determining an accurate amount of revenue for each accounting cycle is crucial. You must know how much profit you’re making each accounting period in order to be successful in the long-term. On this blog, you will discover how an experienced accountant can help you keep track of your revenue.
Creating a strong system for managing petty cash is important because it helps you maintain tight control over your business' financial health. Here are some mistakes that business owners make when working with petty cash, along with tips on how to avoid them.
Not Creating a System
If you only do seldom transactions with petty cash, you might not want to spend the time creating a company policy and system for dealing with these small transactions. But as your business grows, this can get messy, and employees will have to work harder to adjust to a company policy retroactively. Speak to an accountant about how to word an effective company policy for managing petty cash. You can talk to a professional, like Broutman & Co., P.C., for more information.
Not Being Consistent
Consistency will be a key aspect of managing petty cash effectively. If you approve the use of petty cash for one expense, it may be difficult to turn down the same use of petty cash later. If you allow certain employees access to petty cash and deny others without explanation, it's an uncomfortable situation for everyone. Be sure to think about what you really want to do with your petty cash reserves and then stick with it, even if it means sacrificing some convenience at times.
Not Documenting the Expenses Closely
Another mistake you can make is not collecting enough information from employees when they make a purchase that requires petty cash. Your employees may not have the same level of detail in documenting their purchases as your bookkeeper would, so collecting receipts and totals right away is a good way to collect the information before your employee forgets.
You might want to have a sheet that employees can fill out with line items for each time they need to use petty cash. It should include the dates, the amounts, the purpose of the expense, and the employee's signature. Getting in the habit of collecting receipts from employees will also go a long way.
Neglecting to Include Petty Cash in Your Accounting
Finally, make sure that you don't gloss over your petty account spending in your financial reports, such as profit and loss reports or tax estimates. Although it's only a small amount of money that you're working with, having neat and accurate financial reports makes a big difference to shareholders and tax auditors. Ask a business accounting services specialist about ways to include petty cash transactions in your financial reports without spending too much time on the details.
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