Petty Cash

What is Petty Cash?

Petty cash is a small amount of actual cash that a company has on hand to purchase items that cost so little that cutting a check doesn’t make sense or isn’t realistic. It is often used to reimburse employees for relatively low cost purchases, such as a birthday cake for an employee or breakfast treats for the morning staff meeting.  

The amount of petty cash a company has on hand depends on the size and nature of the business. While a small business might need just $50, a large company department might start with $150.

Tracking Petty Cash

One person – the petty cash “custodian” – is responsible for tracking funds disbursed and replenishing the fund when needed. Some companies require receipts for disbursement and others use petty cash vouchers from an office supply store to itemize how the money was spent and who spent it. Some use only a payment log, if anything. The level of sophistication for tracking petty cash spending is usually in line with other company procedures.

Because there’s potential for abuse, companies often require a certain amount of reporting and control. Steps to minimize abuse include limiting the amount that can be disbursed through petty cash, requiring receipts, and monthly audits by a responsible person other than the custodian.

When petty cash fund runs low, the custodian asks the appropriate person to cash a check for petty cash. The accountant typically tracks that in the system by attributing it to a general ledger account titled “petty cash.”

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