We perform a petty cash reconciliation by comparing the amount of petty cash we should have on hand (based on our tracking) to the actual amount of petty cash on hand.

We use this calculation:

Beginning balance

+ Petty cash additions

– Disbursements

= Ending balance

Then, we compare the ending balance to the actual petty cash in the safe and the amount per the general ledger. If they don’t agree, what do you think is the issue?

Qs: At the end of the month, how can we be sure petty cash is correct?

Go through bullet 1

This is very similar to the bank reconciliation, except our external evidence that we compare to is the actual cash we have on hand – we need to count it

If the amount of petty cash in the safe does not agree with the general ledger, there are three possible issues:

1)We did not record all the transactions

2)We did not record all the transfers

3)We made a mistake recording a transaction or transfer

If that’s the case, we must go back and investigate.

Investigation is key

If you are responsible for petty cash, you are solely responsible and need to know and understand every transaction that occurred.

Qs: What control activity does the content in the green box represent?

Qs: And what does that mean to us as the junior accountants?

– Our manager has assigned this to us, if there is an issue, he will come to you.