Petty Cash Management in Malaysia

I noted that it is common for Malaysian businessman to have misconcept on the petty cash management. Normally, the company does not maintain a petty cash float for the company, instead the money collected from cash sales are used to pay for daily office or factory expenses. If the cash sales collection is in excess of the daily cash payment, the company will deposit to the company's current accounts. I would comment that this is not a good practice to manage the petty cash in this manner.

The petty cash is used for payment of daily minor office or factory expenses and the fund or petty cash money should not be collected from cash sales, it should be withdraw from the company's current accounts (Cash out). Upon the full utilisation of petty cash money, the shortfall should be withdraw from the current accounts and top up to the petty cash float decided by the management.

For example, if the petty cash float is RM1,000 and existing petty cash balance is RM400 then the accounts staff should cash out RM600 as reimbursement of petty cash so that the petty cash float is maintained at RM1,000.

The company should fix a petty cash float or in layman term, the float is the maximum amount of cash the company should keep to pay for daily minor expenses. The float depends on the payment pattern and also the quantum of payment. Please take note that fixing a float for the company petty cash would enable the company to insure the cash loss risk from the insurance company, as this is the maximum exposure for cash loss.

The frequency of reimbursement of petty cash normally should be around 2 -3 weeks so that it reduces the administrative work of cash out from the current accounts.

All the cash sales money should be deposit to the company's current accounts intact so that it is easier for tracing and tracking and also minimise the tax audit risk.

With this petty cash management practice, it is clear and easier for the taxpayers to proof to the Inland Revenue Board on the cash sales collection which is fully recognised by the company.