Petty cash provides convenience for small transactions for which issuing a check or a corporate credit card is unreasonable or unacceptable. The small amount of cash that a company considers petty will vary, with many companies keeping between $100 and $500 as a petty cash fund.
Generally petty cash funds for orgs (local units) should be set up in amounts not to exceed $500.
Petty cash forms should be written in ink to prevent alteration, and be safeguarded by the petty-cash custodian. I. Petty-cash disbursements must be accompanied by receipts or other documentation. The petty-cash custodian will disburse funds only if the proper documentation and approval is provided.
Petty cash and per diems are common examples of cash allowances used by businesses. Setting a cash allowance depends on assignment time, location, or the per diem federal rate. Typically, cash allowances are considered taxable income to the employee, like wages and salaries.
This should be small enough that employees won't be tempted to steal it but large enough that you don't have to replenish it too often. Pick a dollar amount you think will cover small office expenses for a month or so. A petty cash fund between $100 and $500 is sufficient for many small businesses.
Require that employees maintain a running petty cash log for every transaction, including receipts. Each entry in the petty cash book should include the date, the amount, and what was purchased with the petty cash. Review your petty cash register before you replenish the petty cash fund.
At the end of the period or year, the petty cash balance will be present on the company's balance sheet with cash on hand and cash in the bank. It is not present in the company income statement, and it is not considered an expense.
Earn less than $75,000? You may pay nothing in federal income taxes for 2021. At least half of taxpayers have income under $75,000, according to the most recent data available. The latest round of Covid stimulus checks, as well as more generous tax credits, are the main drivers of lower taxes for some households.
For example, in the year 2021, the maximum earning before paying taxes for a single person under the age of 65 was $12,400. If your income is below the threshold limit specified by IRS, you may not need to file taxes, though it's still a good idea to do so.
In 2021, for example, the minimum for single filing status if under age 65 is $12,550. If your income is below that threshold, you generally do not need to file a federal tax return.
To establish a petty cash fund, someone must write a check to the petty cash custodian, who cashes the check and keeps the money in a locked file or cash box. The journal entry to record the creation of a petty cash fund appears below.
Typically, one employee is responsible for controlling petty cash funds. This person is known as the petty cash custodian. The custodian will maintain and document all expenses from the petty cash. By giving this responsibility to one custodian, it means that you will retain internal control over the money.
Risks of Holding Petty Cash
The risks range from operational risk to fraud risk. Some of those risks include: Theft or Misappropriation: The access to the fund could lead to employees borrowing monies for their personal use and attempting to cover it up before the fund is replenished.
Keeping Records
Like any other business expense, the IRS requires that you keep receipts and other back up for seven years. Attach the receipts to the back of the petty cash reconciliation sheet and file when entered.
Single. Not 65 or older: The minimum income amount needed for filing taxes in 2020 should be $12,400. 65 or older: It should be over $14,050 to file a tax return. If your unearned income was more than $1,050, you must file a return.
As of the 2021 tax year, the minimum gross income requirements are: Single and under age 65: $12,550. Single and age 65 or older: $14,250. Married filing jointly and both spouses are under age 65: $25,100.
Even the smallest amount of income is taxable so even if you made less than $25,000, you most likely paid federal income tax. Check your pay stubs for federal deductions. These should say "FED TAX" or "Federal Tax." This total is the amount the federal government withheld from your paycheck for federal taxes.
For more information, visit Employer News and Updates (edd.ca.gov/payroll_taxes/employer-news.htm). The 2022 taxable wage limit is $7,000 per employee.
If you fail to report all your cash income, you might be on the hook for penalties. These amount to a 50% penalty on the late FICA taxes, and up to 25% on late income taxes — plus any additional interest. Of course, these penalties are only assessed if you actually owe tax.
If you earn less than $10,000 per year, you don't have to file a tax return. However, you won't receive an Earned-Income Tax Credit refund unless you do file.
Write a check to cash for the money you need to restore the original balance. If the combined total equaled the original balance, write the check for the Total Withdrawals amount. If there's a shortage, add the Total Withdrawals and Cash Short and write the check for the total.
Petty cash should not to be used as an operating fund, i.e., to pay invoices for goods or services, to pay salaries or wages, or to make advances or loans.
In businesses that have a frequent need for petty cash, it's often set up in the front office with a petty cash drawer or box, or in a retail location using a cash register. (Yes, some places still use a cash register.)
Petty cash custodians should reconcile a petty cash fund at least once a month to ensure that the total cash on hand plus total receipts not yet submitted for replenishment, petty cash replenishment requests in process and any uncashed replenishment checks equal the original amount of the petty cash fund.