What is petty cash?
A petty cash fund covers small purchases where paying by card or bank transfer isn't practical. Even though amounts are small, petty cash is easy to misuse, so it needs clear controls.
The imprest system
Most businesses use an imprest system:
- Set a fixed float, such as $200.
- Pay expenses from the box and keep a receipt or petty cash voucher for each one.
- At any time, cash + receipts should equal the float.
- When cash runs low, top up the fund by the total of the receipts and record the expenses.
Accounting entries
- To set up: debit petty cash, credit bank.
- To replenish: debit the relevant expense accounts, credit bank.
Controls
- One named custodian
- A spending limit per transaction
- A [voucher](/glossary/voucher) and receipt for every payment
- Surprise counts and monthly reconciliation
- A locked box or safe
Example
A $300 float has $85 left, with receipts for $120 of stationery, $60 of postage and $35 of cleaning supplies ($215). Cash + receipts = $300, so the fund balances. The business tops up $215.