Petty Cash Replenishment Journal Entry

Introduction

In business, we usually need to replenish the petty cash fund when our petty cash box reaches a certain level of the fund or when it is about to be empty. Likewise, we need to make the petty cash replenishment journal entry in order to refill our petty cash box as well as to account for all the petty cash expenses that have occurred so far.

In accounting, we usually record the cash transaction immediately into our accounting record whether it is the cash inflow or the cash outflow from the company. However, when there is a petty cash outflow, we usually do not record it into the accounting record immediately.

This is due to the petty cash expense is usually limited to only a certain amount that is deemed to be immaterial. After all, the petty cash fund is established in the first place in order to handle the small expenses that occur in our day-to-day operation.

In this case, all expenses using the petty cash are usually only be recorded to the accounting record when we make the petty cash replenishment journal entry after the petty cash fund reaches a certain level (i.e. about to run out). This is to ease the process of recording the accounting transactions and this usually works very well as long as there is proper petty cash control in place (e.g. dual signatures).

Petty cash replenishment journal entry

We can make the petty cash replenishment journal entry by debiting the expenses accounts and crediting the cash account for the petty cash expenses that we have so far.

In this journal entry, there is no petty cash account involved. There is only a credit of the cash account. This is due to, in accounting, after the petty cash fund is established by transferring a certain amount from the cash account to the petty cash account, the balance of the petty cash account usually stays the same throughout the accounting period.

After all, the petty cash expenses will only be recorded when we make petty replenishment. Hence, it is more efficient to just record all those expenses with the cash account directly.

It would be inefficient if we record those expenses with the petty cash account and then record another transaction to transfer that same amount from the cash account to the petty cash account.

For example, the journal entries below would be inefficient which is why we should cross out the petty cash account and combine them into one journal entry instead:

Petty cash replenishment with cash overage

Sometimes, there is a cash overage after we reconcile the fund remaining in the petty cash box to the petty cash receipts that represent all the expenses using the petty cash fund. In this case, we need to also include the cash overage in our journal entry for the petty cash replenishment.

Likewise, we can make the journal entry for petty cash replenishment with the cash overage by debiting the expenses accounts and crediting the cash over and short account and the cash account.

The cash over and short is usually recorded under the other revenues or other expenses on the income statement as its amount is usually very small.

Petty cash replenishment with cash shortage

On the other hand, we may see that there is a cash shortage instead when we make the reconciliation of petty cash funds to the petty cash receipts.

In this case, we can make the journal entry for petty cash replenishment with the cash shortage by recording the cash over and short account on the debit side instead, as below:

In accounting, we usually have the cash over and short account to represent both cash overage and cash shortage as their amount is usually small. Hence, we usually net them off against each other by recording the cash over and short on the debit side for the cash shortage. And if it is a cash overage, we will record it on the credit side instead.

Petty cash replenishment example

For example, on December 31, we need to replenish our petty cash to its full amount of $100. As of December 31, we have only $20 left in the petty cash box. The remaining $80 has been spent for various expenses during the month, in which they are included in petty cash receipts as below:

• Postage: $25
• Transportation: $35
• Office supplies: $15
• Miscellaneous expenses: $5

In this case, we can make the petty cash replenishment journal entry on December 31 as below:

This journal entry is made in order to account for the $80 expenses that have occurred during December as well as to replenish the $80 petty cash that we have spent as we only have $20 which is about to run out. Additionally, assuming that we close the year-end account on December 31, this journal entry may be necessary in order to include the $80 expenses, though it is just a small amount, into the income statement of the year.

Example 2:

For another example, assuming that after the reconciliation of the petty cash fund on December 31 above, we find out that there is $22 remaining in the petty cash box instead of $20. And the total expenses of the petty cash receipts are still the same of $80 as below:

• Postage: $25
• Transportation: $35
• Office supplies: $15
• Miscellaneous expenses: $5

In this case, there is a cash overage of $2 and we need to replenish only $78 ($100 – $22) in order to reach the full amount of $100 in our petty cash fund.

Hence, we can make the journal entry for petty cash replenishment with the $2 cash overage as below: