Negative Petty Cash

[rjaley]

Our petty cash account has never had any cash deposited into it. Consequently it has maintained a negative balance, currently in the neighborhood of $5,000.00. I am planning on writing a check to the petty cash account ( in reality to the owner to reimburse petty cash expenses ) for the exact amount that it is negative. Then once a month record the petty cash expenses and write the Owner a check to reimburse for them, returning the account from a negative to a zero balance at the end of every month. Can you tell me if that will work? Is it the best way to handle a small petty cash account?

[Casey McD]

Sure, that sounds like an excellent approach.

I think when it comes to petty cash coming from an owner's pocket, pretty much anything works.

The idea is that the Cash account makes it easy to track small expenses, so you can deduct them for taxes, and have a good sense of all job costs & overhead expenses. How you settle up the actual money is less critical since it's just a shifting of funds from one bank account to another.

[rjaley]

KC-
What would be the correct way to handle this?

It seems that we want to write a check for “Cash” that in theory is going to be deposited into the Petty cash account, but in reality is going to be cashed by the owner to pay him back for all of the out of pocket cash expenses he has paid for over the last 18 months since we started using GS.

Since we have entered all of the cash expense as business deductions (cost of goods sold or overhead items) shouldn’t the check also be now considered as part of the owner’s salary?

[Dennis]

The negative balance in the Cash account reflects money that you owe to somebody. It's basically a loan. In this case, from the owner.

So you'll write a check to pay off the loan-- in this case, to the owner.

It's not salary, since it's just repaying the money that the owner loaned to the business (by paying small petty cash expenses).