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 when accounting. 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 cash flow in the system by attributing it to a general ledger account titled “petty cash.”
What is petty cash? FAQ
What does petty cash mean?
What is petty cash and how does it work?
What are the types of petty cash?
- General Petty Cash: A general petty cash fund is a designated amount of money set aside for small, miscellaneous expenses. It is typically used for items such as office supplies, postage, and minor employee reimbursements.
- Imprest Petty Cash: An imprest petty cash fund is a fixed amount of money that is periodically replenished. A common example is a fixed amount of money that is set aside to reimburse employees for expenses related to business travel.
- Emergency Petty Cash: This type of petty cash is set aside for emergency purposes. It is typically used to cover urgent expenses that arise unexpectedly, such as a broken window or a printer malfunction.
- Discretionary Petty Cash: Discretionary petty cash is an amount of money that is available for use at the discretion of a manager or supervisor. This type of fund is typically used to reward employees or purchase small items that are not budgeted for.