Petty Cash or Accountable Reimbursement Allowance

Question: Can you explain the difference between a petty cash system and an accountable reimbursement allowance?

Answer:
Technically they are different. Before I start let me say that employees at my church do use the terms synonymously for simplification of wording and ease of reference.

Petty Cash
Businesses often need small amounts of discretionary funds in the form of cash known as petty cash for expenditures where it is not practical to make the disbursement by check. Typical uses are for: (1) local retail purchases, (2) meeting expenses, (3) business meals, (4) local transportation, (5) books, (6) subscriptions, (7) postage, etc.

The most common way of accounting for these expenditures is to use the imprest system, which is a type of accountable reimbursement system. The initial fund would be created by issuing a check for the desired amount. Usually $100 would be sufficient for most small business needs. As expenditures are made, the custodian of the fund will reimburse employees and secure a petty cash voucher in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund. When the fund gets low the custodian submits the vouchers for reimbursement. A check is issued and expensed based on what the funds were used for. Once the check is cashed, the custodian has available cash in the petty cash fund back at the original amount.

Accountable Reimbursement Allowance
Similarly, businesses often need to provide discretionary funds for use/expenditures by their executives where it is not practical to make the disbursement by check. The most typical uses are for meals with clients and entertaining clients.

The most common way of accounting for these expenditures is to use an accountable reimbursement allowance. The executive is designated a monthly or annual allowance for such expenditures. As expenditures are made, the executive pays with cash or credit card and documents on the receipts the purpose and the people in attendance. These receipts are turned in periodically (typically monthly) attached to an expense reimbursement request form. The business then reimburses the executive. Again for ease of discussion employees at my church call this type of expenditure “petty cash” when really it is an accountable reimbursement allowance.