Petty Cash: What It Is, How It’s Used and Accounted For, Examples 2025

In scenarios where cheques or corporate credit cards present too much of a hassle, petty cash comes across as a quick fix because it does not entail a lengthy process or procurement system. That said, petty cash expenses will also require reconciliation like any other business transaction to avoid leakage and fraudulent practices. For example, a petty cash card for businesses makes each transaction trackable, and holds employees accountable for the small expenses they incur. The concept of Imprest funds or petty cash is centuries old, tracing its roots back to the early days of commerce and trade. Before the advent of modern banking systems, businesses relied on readily available physical cash for day-to-day transactions. With the growth of accounting systems and financial regulation, petty cash evolved into a well-structured and managed tool for addressing small-scale expenses.

Petty Cash: What It Is; How It’s Used and Accounted For; Examples

Necessary adjustments should be made to the petty cash account, with all findings documented to ensure accuracy and accountability in financial reporting. Begin by appointing a petty cash custodian responsible for managing the fund. Fund the fund through a withdrawal from an ATM or by writing a check, marking it clearly in your accounting records. Establish a petty cash log for detailed and thorough tracking of all transactions. This log should run on vouchers collected by the custodian in exchange for cash disbursements. Petty cash is a small amount of money a company keeps for small, incidental expenses.

Establishing Internal Controls for Petty Cash Management

Operational costs like staff salaries, utilities and subscriptions should stick to the general expenses (trust us). And with the latest software, like Connecteam, users will no longer need to manually write down how much petty cash they require. With just a couple of clicks, users can quickly fill in some forms and receive approval in a matter of seconds. Even though most instances of petty cash use a rather insignificant amount of money, there is a need to monitor it closely because it can add up to a significant amount over time. There are a number of ways that businesses can benefit (and suffer) from having petty cash at their disposal. Petty cash ranges from ₹5,000 to ₹20,000, adjusted based on branch size and transaction frequency.

Step 3: Reimburse and record it in petty cash logs

It integrates with other accounting systems, automating workflows to reduce manual effort, cut administrative costs, and ensure accurate expense tracking. This software simplifies cash reconciliation and provides real-time reports on usage, trends, and balances, supporting budgeting and financial analysis. Proper documentation is crucial for audit readiness and financial transparency. All receipts, vouchers, and related records should be securely stored to maintain a clear audit trail. Any discrepancies between recorded and actual cash should be investigated for possible causes such as missing receipts, errors, or theft.

Petty Cash vs Cash on Hand

So, go ahead and use the insights you gained while going through this blog to manage your petty cash better. If you enjoyed reading this, chances are you will also find useful this guide on things to consider before applying for corporate cards. Now, let’s look at how you can manage petty cash with prepaid cards in the most simple, hassle-free, and holistic way. Ease and convenience are the main reasons that businesses have continued to use a petty cash system – giving team members immediate access to resources as and when they’re needed.

The petty cash balance sheet is also classified under current assets in the balance sheet due to its high liquidity. As assets are ordered by liquidity, petty cash, being easily accessible, is positioned near the top of the petty cash sheet. Most firms use the petty cash fund for such expenses since it is an easier option when compared to cheques and cards.

Almost all departments of large companies store small amounts of cash in drawers, boxes, etc. Ananya heads to her desk and opens the petty cash box—allocated specifically for urgent, small-scale needs like this. She quickly withdraws the required amount, issues a petty cash voucher to document the transaction, and informs the IT technician to buy the monitor immediately. Within an hour, the replacement monitor is installed, and the IT team resumes their work, ensuring the client’s deadline is met without delays.

• Daily-wage workers can also be paid on time in a hassle-free manner with petty cash, and the same is true for smaller vendors needed for essential supplies.
• If the balance is small, it suggests a shortage, and if you have more balance left than you should, you have an excess.
• The petty cash account covers business-related expenses generally categorized as miscellaneous expenses.
• The best way to record these expenses is by collecting petty cash receipts.

After completing the reconciliation, update the accounting records to reflect any adjustments, discrepancies, or replenishments made to the petty cash fund. It is important to regularly perform reconciliations on a weekly, bi-weekly, or monthly basis, to ensure the transactions accuracy. Compare the total recorded in the petty cash log with the actual physical cash count. The sum of cash on hand plus any receipts should match the recorded balance in the log. If there is a discrepancy, investigate whether transactions were missed or incorrectly recorded. While larger financial transactions often take priority, it is the smaller, everyday costs that keep your operations running smoothly.

• The journal entries are made when the custodian receives new funds in exchange for the receipts.
• Petty cash is helpful for small transactions where cheque or corporate credit card creation is inappropriate.
• Almost all departments of large companies store small amounts of cash in drawers, boxes, etc.
• Therefore, always set a reimbursement limit to avoid cash leakage and to overpay.
• It can speed up the reimbursement process, and your employees need not spend money out of their pockets for immediate and petty expenses.

With cash, it’s easy to feel like it disappears in the blink of an eye. In 2024 especially, with rising costs showing no end in sight, cash can be tough to hang onto for too long. Not to mention how almost impossible following the trail then becomes.

Remember, petty cash is classified as a current asset on your balance sheet, highlighting its liquid nature. The physical nature of cash makes it ideal for immediate, low-value transactions. Unlike credit card or debit card payments, petty cash offers instant access, crucial in unforeseen circumstances. This liquid fund ensures business continuity for minor business expenses, preventing delays and maintaining smooth operations. Petty cash accounting software helps businesses manage small cash expenses for daily purchases, offering efficient transaction tracking and reconciliation with the available cash balance.

Management

The best way to record these expenses is by collecting petty cash receipts. petty cash These receipts should match the replenishment of funds within the recorded periods. Petty cash reconciliation is required to be done at regular intervals to make sure the fund balance is correct. The custodian has to get the total of all the receipts to make sure that the resulting figure matches the amount taken out from the office drawer. Petty cash is the cash amount used to settle small expenditures that companies make from time to time.