Petty Cash: Definition, Recording, and Usage Guide

You might even enter the names of employees who request funds and why they may need them—it might indicate an expense you weren’t aware of. For starters, many companies will restrict access to petty cash to just one or a few individuals. Typically, the custodian will be responsible for providing detailed documentation supporting each use of the petty cash for internal records.

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With these pillars of proficiency in place, petty cash can be an efficient tool in any business’s financial arsenal. When it comes to managing a company’s finances, understanding the concept of petty cash is as fundamental as it is crucial. Petty cash refers to a small amount of cash on hand that is used for covering minor expenses in a business.

What is an expense? Meaning, type and examples

• While the actual funding should be recorded, the individual purchases do not need to be officially recorded.
• Business owners usually keep a small amount of cash in a safe or lockbox that they use to pay for unexpected items.
• While it shouldn’t be a habitual practice, petty cash in a pinch can be used to make change for customers, if the till’s running short.

Meet Ananya, the office manager at Summit Tech, a mid-sized software company. Her role involves ensuring smooth operations of the office, which often includes handling unexpected expenses. On a regular Tuesday morning, she receives a call from the IT team—one of their monitors has stopped working, and it’s causing a bottleneck in completing an urgent client project. However, raising a purchase order through Summit Tech’s corporate system would take at least two days for approval and fund release. The primary rule for petty cash is to maintain accurate records of all transactions and to replenish the fund regularly to its original balance. At its core, petty cash refers to a small, readily available fund of actual cash money used to cover minor, incidental expenses.

Advantages of a petty cash fund

The amount allocated for Imprest Funds depends on the size and needs of the organization. Small businesses might maintain a fund of a few thousand rupees, while larger entities may set aside higher amounts to meet more frequent or varied expenses. A small sum of money designated for paying small bills without writing checks is known as petty cash or a petty cash fund.

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In today’s fast-paced business environment, from bustling retail stores to expanding midsized businesses, the ability to handle minor expenses efficiently is crucial. In this article, we’ll provide a comprehensive understanding of petty cash management, accounting, and modern alternatives to better handle this expense. The cash is kept on site, usually in a secured drawer or safe that can only be accessed by someone with authority to handle the cash.

Petty Cash vs Cash on Hand

• As a practical entrepreneur, you can’t expect everything to go your way.
• Recommended procedures include keeping detailed records with receipts, assigning one person to be responsible, and establishing a system for replenishing the fund.
• Once you begin creating the petty cash float, your petty cash account book entry will show a debit of the amount deducted to your petty cash fund.
• The security aspect is often important to small companies, who have long feared that keeping cash around is an invitation to crime.
• A more streamlined alternative to petty cash is the use of company credit cards to make purchases, or reimbursing employees for cash payments that they make on behalf of the company.
• Current assets are assets that provide economic benefit within one year.
• This lets you reconcile—that’s fancy accounting speak for “double check”—your petty cash fund on the fly.

Strategic bookkeepers provide real-time financial intelligence, track key performance indicators (KPIs), and ensure businesses remain audit-ready and investor-friendly. By leveraging advanced bookkeeping services, businesses can enhance profitability, improve budgeting, and navigate tax compliance with greater confidence—all without hiring a full-time petty cash CFO. Enforcing petty cash policies and procedures, obtaining replenishments, and allocating funds are all typically part of the custodial responsibilities. Yes, petty cash is considered a current asset on a company’s balance sheet.