are there any special procedures for managing non-petty cash?

Question

We need to pay for a lot of purchase by Cash On Delivery here in Japan. Are there any special procedures I should use to manage this cash account? I've read many articles on Petty Cash management but they all emphasis the fact that Petty cash is for small amounts of cash i.e. less than $100 is oft quoted. In our case we are spending, on average, over $1,200 per week. For many Japanese online sellers, COD is their only payment method.

I had entrusted a former employee with managing this cash as petty cash, but discovered she wasn't really managing it properly and the account is out-of-balance. I'm thinking to just do some adjustment for the difference and start a new account and manage it properly, but wanted to first double-check and see if there are any special procedures I should be aware of, because, as I noted, every article I read about petty cash mentions it's for "petite" amounts of cash, so if we are spending around $5,000 monthly should I do anything different, or just manage this "Grande Cash" account as if it were Petty Cash?

Answer 1

You manage this account just as any other account. "Petty cash" refers to accounts where the cash money is intended for ad-hoc purchases, where you store an amount of cash in your drawer and take it out as needed. However, other than naming it "petty cash", there's nothing petty about it - it's an account just as any other.

Many choose to just "deduct" the amount transferred to "Petty Cash" account and not manage it at all. Here the amount matters - some smaller amounts can fall under "de minimis" rules of the appropriate regulatory authority. Since you told nothing about where you are and what your business is - we can't tell you what the rules are in your case.

If you track the usage of this account (and from your description it sounds like you are) - then the name "Petty Cash" is meaningless. It's an account just like any other.

Since you have an employee dealing with this cash you should establish some internal audit procedures to ensure that there's no embezzlement and everything is accounted for. You will probably want to reconcile this account more often than others and check more thoroughly on what's going on with it.

Since its a "personal finance" forum, I'm assuming you're a sole proprietor or a very small business, and SEC/SOX rules don't apply to you. If they do - you should have a licensed accountant (CPA or whatever public accountancy designation is regulated in your area) to help you with this.

Answer 2

After talking to two CPAs it seems like managing it using an imprest system is the best idea.

The base characteristic of an imprest system is that a fixed amount is reserved and later replenished as it runs low. This replenishment will come from another account source, e.g., petty cash will be replenished by cashing a cheque drawn on a bank account.

Petty cash imprest system allows only the replenishment of the spend made. So, if you start the month with €100 in your petty cash float and spend €90 of that cash in the month, an amount of €90 will be then placed in your petty cash float to bring the balance of your petty cash float back to €100. The replenishment is credited to the primary cash account, usually a bank account (Dr - Petty Cash a/c, Cr - Bank a/c) and the debits will go to the respective expense accounts, based on the petty cash receipt dockets (Dr- Expense a/c, Cr - Petty Cash a/c).

In a non imprest system where a fixed amount is issued every month, e.g., €100 every time cash is required, there is no incentive to ensure all money issued has been documented because when money is all spent a check for a fixed amount is issued. It is much more difficult to reconcile a non imprest system as you never know how much exactly should be in the float.

In an imprest system the amount requested is documented, the documentation being the petty cash dockets and their associated receipts or invoices. So at all times you can check how much should be left in the petty cash float by deducting the amount spent from the opening petty cash float.