It’s easy to do – open the petty cash box or the cash drawer and pull out a couple of twenty dollar bills.A quick trip to office supply store, the Strip District or Restaurant Depot to pick up a few things and it’s back to business.
The IRS does not require a receipt for purchases under $75– so it’s an OK practice if you don’t always have a receipt – right? Petty cash funds are not a way to get around cash disbursement controls. They enhance efficiency by providing cash quickly. Although not required by the IRS, making a practice of not keeping receipts for small purchases can add up and deductions may be missed.
As your business grows, you may find it necessary to make those stops more often. Without the receipts cash goes out the door and you may forget where cash was spent. Even small receipts should be recorded as they can be deducted.
Looking at a pattern of spending may lead to exploration of new vendors for services, shopping for office supplies online and other time saving tasks that cost a business owner more than the amount on the receipt. Think about your hourly wage in the time away from the business to make these purchases.
Although amounts may vary, for this example … twice a week cash is pulled from petty cash or the cash drawer totaling $110 per week. The first expense was for $50 the second expense was $60 – both under the $75 required by the IRS for a deduction. If you did that every week the monthly amount could total $440 and a yearly amount of cash would be as high as $5,280. Without documentation as to what these expenses are for, it is easy to miss these business deductions. As you can see, over time they can add up.
Failure to keep and record all cash receipts may leave you with an incorrect or incomplete picture of your company’s financial situation. It can also lead to faulty accounting, frivolousor wasteful spending, or theftby unscrupulous employees.
The best rule of thumb….. Cash is King– if cash goes out, a receipt must come back.