Petty Cash

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Petty Cash

Please note these post relates to the use of centrally pooled cash and not a reimbursement of expenses.  For reimbursed expenses please see that post.

When you are making payments for small cash items we always advocate the use of a Debit Card as these transactions will always appear on your bank feed and therefore make the processing of transactions much easier and quicker.  We appreciate this may not always be the case so there are a few ways to deal with Petty Cash within Xero which have been dealt with below:

Petty Cash as a Bank Account

Probably the most commonly used and most controlled but also in our opinion the most long winded as it involves treating Petty Cash as a bank account which means it needs reconciling at the end of each month against what is in the Petty Cash tin i.e. is the cash in the tin matching what is in your Xero Petty Cash bank account.  Likelihood is this is not the case as those receipts go missing.

The process for reconciling is a manual one as there is no direct bank feed as with the other accounts.  This means you will need to manually tick off each item as reconciled.  No great hardship if you have a few transactions.

The video below shows you how to deal with the processing and the one below that on how to mark items as reconciled manually.

Managing petty cash in Xero accounting software

Manually reconciling statement lines in Xero accounting software

Petty Cash as Directors Expense

Arguably the quickest and easiest way to deal with Petty Cash in Xero is to treat the transactions as if they were cash introduced and cash taken from the business from the Directors Loan Account.  Please note there is no reconciliation function doing it this way so less control over whether everything has been claimed back.

In this instance each time there is a cash withdrawal from the bank to top up the Petty Cash you can treat the money out as a Spend Money item from the bank account and post it to the Directors Loan Account as if you were giving the money to the Director.

Therefore when you are spending money you will treat it as a introduction of money from the Directors Loan Account.  The float is therefore the balance in the Directors Loan Account.  To do this you would process your Petty Cash items in the same way as you would normally enter a Bill into the system but when you mark the Bill as paid you must choose the Directors Loan Account as the Bank Account.  In order to do so you must have first enabled payments to this account for the Directors Loan Account.

Enable Payments to Account in Xero

Lets face it in most small businesses the Petty Cash is treated exactly in this way and from a processing point of view it means no Petty Cash bank account to reconcile.

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