The business wants to establish a petty cash float of 300 using money withdrawn from its the bank account.
How to Record the Set up a Petty Cash Float
The accounting records will show the following bookkeeping entries when the business withdraws cash to set up a petty cash float:
Petty Cash Float Bookkeeping Entries Explained
Debit – What came into the business
Cash came into the business in the form of petty cash.
Credit – What went out of the business
Cash went out of the business checking account when it was withdrawn
The Accounting Equation
The accounting equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
In this case one asset (petty cash) will have increased and another asset (cash) will have decreased by same amount. The entry simply records the movement of money in the business from cash to petty cash.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.