Petty Cash Revisited
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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.
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.
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