Petty Cash Revisited
A reader asks.......
Rip, you are always advocating never to use the petty cash account. As a matter of fact you wrote a column to that effect at.......
Petty Cash and Deductible Expenses
Now, I am hearing rumblings that Petty Cash may be all right. What gives?
Yes, indeed, things have changed. Never say never, my mother used to say, and I should have taken that to heart. But how was I to know that bivio would come up with a very innovative new approach to deductible and non-deductible expenses that would change my advice on that forever (Ok, Mom, for a while anyway <g>)
A little history lesson may be in order here. Originally, the authors of the NAIC accounting manual envisioned using Petty Cash as a place from which non-deductible expenses could be paid. As such, the balance in the petty cash account was not to be included in the club assets, and did not figure into the valuation computation. Many clubs, not realizing that Petty Cash was not considered part of the club's assets, started to use Petty Cash as a place to pay all administrative expenses, as opposed to investment expenses. This brought about a great deal of confusion, since these administrative expenses are deductible, but the act of putting them in the Petty Cash account made the software program treat them as non-deductible. And that is why, Gentle Reader [as Miss Manners often says], I made the following statement in the above mentioned article..........
I will repeat my personal, iron-clad rule - Do not use the petty cash account for any reason.
But, now, that is all changed. bivio allows users to record non-deductible expense within the partnership. This can be done using any account. The valuation statement will accurately reflect the reduction in value because of non-deductible expenses, but the income tax report will not show them. For more information on this, read Jerry Dressel's article. Club Expenses at.........
Because bivio also allows multiple accounts, you are now able to have your own 'on the books' petty cash account. If a treasurer collects $5 from 10 members to cover copying and mailing expenses, he/she can now put that in a cigar box, and pay appropriate expenses from it. The expenses will be a part of the records.
So now the only remaining confusion will probably be .......
What should we do with our old petty cash account that never was part of the official records?
bivio has probably already renamed this account for you as Petty Cash - Off The Books. This was done to keep the old type petty cash [off the books] separate from the new type [on the books]. My recommendation is that you eliminate this account as soon as possible. If you still have the money represented by the balance in the old petty cash account, I recommend that you bring it on to your books. You can do that by crediting each partner with an equal share, or you can do it by ownership, but do bring it on the books. If the money resides in your regular bank account, show that account for your depository for the payments/fees. If it resides in a cigar box, make a new account - Cigar Box, New Petty Cash, whatever. Let your imagination run wild.
The trez_talk guyz would be happy to try to answer any additional questions on Petty Cash.
Rip West
Saint Paul, MN
Disclaimer: the statements above are opinions of the author and are not official statements from either bivio or the IRS. These statements are not intended to replace professional tax or accounting advice. When in doubt, follow the advice of your local tax advisor or accountant who is familiar with your particular circumstances.