Petty Cash:
A Petty Cash fund is a convenient resource maintained by an organization for the purchase of minor items.
Important Insights into Petty Cash Management for Professionals:
Even for the nominal funds held in the secure receptacle located beneath the reception desk, it is imperative that one maintains a meticulous record of the following:
- All transactions occurring, whether inflow or outflow
- All corresponding receipts for these transactions
- A continuously updated balance that aligns with the present sum held
Subsequently, these records are to be meticulously transcribed into the accounting ledgers, ensuring that the data is accurately inputted and cross-checked.
Reasons Why Certain Bookkeepers Appreciate the Utility of “Petty Cash”:
- Some bookkeepers excel in managing petty cash through manual methods and understand the significance of maintaining accurate records for tax purposes.
- It requires a great deal of skill, meticulous attention to detail, and a significant investment of time.
- Bookkeepers who prefer traditional petty cash management are compensated hourly, and may charge for the time spent on inefficient processes.
- Fortunately, there are alternative approaches available that can result in significant cost savings for your business.
Alternative Approaches:
Bank Account with Debit or Credit Card:
Many banks in Australia offer cost-effective business bank account options, including the provision of a debit card. This is advantageous for banks as they earn a small percentage from each transaction made with the card, known as merchant fees.
This does not result in any additional cost for the account holder, as $5 spent on the card is equivalent to $5 in cash. Even if there were nominal charges per transaction, the overall administrative fees for the account holder would still be lower, and the risk of internal theft within the business would decrease.
By linking the bank account to accounting software, it becomes easier to monitor expenses and ensure accurate recording of transactions.
Advantages:
- Most of the record keeping is done for you by the banking system
- Accurate transaction record, allows you to investigate when something goes wrong or missing
- Significant reduction in forgotten or unclaimed expenses
Disadvantages:
- You or your bookkeeper still need to chase your employees for the receipts
- Proper access procedures required to keep it under control
Employee Expense Claims:
As a tool utilized by businesses to manage, reimburse, and review employee-initiated expenses, the use of employee expense claims is a prevalent practice in various organizations globally.
In your capacity as an employer, you have the opportunity to claim GST credit when providing reimbursement for a taxable expense incurred by an employee that is directly tied to your business operations. Upon receipt of a tax invoice or receipt from the employee, you can proceed to claim the credit through your activity statement in the usual manner.
Advantages:
- When employees utilize personal funds for purchases, they tend to be more conscientious about their spending.
- You are relieved from the task of tracking down and collecting necessary tax invoices or receipts, as this responsibility falls on the employee.
Disadvantages:
- Few employees are willing to personally fund business expenses and go through the process of reimbursement. This can result in additional work for the bookkeeper and accountant, leading to increased administrative costs.
- Improper handling through accounting software may also hinder reporting transparency.
Accounts Payables:
Accounts payables are operational systems implemented by a business to take care of expenses related to the business.
When an employee requires a payment to be made, they submit an invoice or purchase order. Your bookkeeper then enters this information into the system for your review and approval before making the payment.
Advantages:
- You have an up-to-date and clear list of outstanding payments, items requiring approval, and upcoming payment deadlines, allowing for better financial control.
- Substantial cost savings achieved by reducing unnecessary software subscriptions that have been haphazardly set up by employees.
- Improved oversight of expenses to prevent unnecessary spending, a common practice in larger organizations. When implemented effectively, this approach can enhance operational flexibility.
- Enhanced supplier management by enforcing accountability before payments are made, leading to increased efficiency.
- Implementing a “No Invoice, No Payment” policy can have unexpected positive impacts on your business, promoting better financial practices and outcomes.
Disadvantages:
- Another bureaucratic layer that may impede efficiency, but with the implementation of appropriate processes and procedures, tasks can be streamlined without compromising operational flexibility.
Credits
Dhanya Ramesh
Services Management
