This continues our 10-part series of best practices for business owners.
Best Practice 8: Develop good habits for tracking petty cash
Unless you have receipts to back up what business expense you purchased with cash withdrawal, it is very easy to lose track of these expenses. With out proper documentation, this money turns into owner draw and could potentially increase your tax liability.
While it is never a good practice to take cash withdrawals from your business account, sometimes business owners need a way to simply track small purchases with out using a credit card or writing a check. If you have a petty cash account, maintain receipts to document monies spent, and reconcile petty cash monthly to ensure you do not lose track of those expenses.
For the same reasons businesses should reconcile bank statements, petty cash is a part of the businesses financial picture, which help business owners make smart and profitable business decisions.