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

Ananya records the amount in the petty cash log, approves the purchase, and sends a team member to pick up the cake. The usual supplier takes days to deliver, so Ananya authorizes the purchase of toner from a local stationery store using petty cash. Yet another small hiccup resolved efficiently without interrupting the day’s workflow. Petty cash typically covers small, incidental expenses such as office supplies, minor repairs, or refreshments for meetings. It is used for transactions that are too small to warrant writing a check or using a credit card. Large purchases might require using a company credit card or writing a check.

Step 2: Store the petty cash in a box

We streamline your business functions and processes so you get back to the business of your business. You can assign a card to each of your different branches, or different employees, depending on the nature of your business. Of course, like all easy solutions, petty cash comes with its own challenges. We can formalize this definition and set up the scope of how petty cash should and should not be used. But this is supposed to help the key holders keep track of what is spent where, as well as how much petty cash is available. Only a couple of chosen individuals should be key holders to the petty cash, as noted in the petty cash policy that your company might put together.

Establish the Policies and Procedures for Petty Cash Management

Some examples may include snacks, transport fares, office supplies, etc. Lastly, you must regularly review and reconcile your petty cash funds, so you can ensure that the money spent is always repaid. Be sure to investigate and review any discrepancies as soon as they are discovered. When someone uses the fund, debit each expense and credit cash in a separate cash disbursement journal. At the end of the period or when you reconcile the petty cash fund, record the amounts in your general ledger.

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If there is a shortage of funds or over the required limit, a journal line entry is recorded into a short/over an account. On the other hand, it is a debit entry as a loss if the petty cash fund is short. In such a scenario, reconciliation is observed to balance the funds forcefully. An organization, as per its estimate, gets approved the cash required for a specific range of time, be it weekly or monthly.

How to record a cash purchase without a receipt

• A few hours later, the HR team approaches Ananya to request funds for a surprise birthday cake for an employee celebrating their work anniversary.
• However, bigger companies will appoint a middle-level management employee to be the custodian.
• The voucher has to consist of an outline of the price alongside the date and amount.
• An organization, as per its estimate, gets approved the cash required for a specific range of time, be it weekly or monthly.

It’s important to account for petty cash uses in your general ledger because it is an expense recorded in your financial records, like the balance sheet. Depending on the types of expenses and your industry, you may also be able to claim itemized deductions for these expenses. A petty cash account provides an easy way for employees to pay for postage, extra supplies an employee might need, or snacks you might buy for a meeting with a client. There are various scenarios where it makes more sense to use petty cash rather than reimbursing an employee through their paycheck.

Why is a petty cash box important?

We pay our respect to their Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples today. Our head office is located on the land of the Gadigal people, of the Eora nation. Yes, petty cash is considered a cash equivalent because it’s readily available and can be easily converted into cash.

Reconciliation in Petty Cash Accounting

Petty cash rules entail designating a custodian responsible for fund management, setting a limit for disbursements, requiring receipts for all expenses, and conducting regular reconciliations. And, petty cash usage should be restricted to authorized business-related expenses only. To administer the petty cash account effectively, the custodian must maintain a disbursement log. This log facilitates accurate reconciliation when preparing financial statements at the reporting period’s end. Petty cash is typically reported under current assets and tracked to ensure accuracy in the overall financial statements, reflecting all company expenditures. Add any replenishments made to the fund, and then subtract the total expenses paid out.

When GST-inclusive purchases are made, the tax must be included in your GST returns. Petty cash management becomes simpler with Pazy’s real-time tracking and automated reports, giving you better control over your expenses. Partner with us to enhance your financial processes and make more informed decisions. Also, you can maintain the accuracy and integrity of your petty cash system with Pazy‘s robust policy management, automated expense tracking, and real-time updates. When the petty cash fund runs low, the custodian must request replenishment.

Although there can be minor variances, when unbalanced, the source of the discrepancy should be identified and corrected. Unfortunately, it can be easy for your employees to take advantage of the petty cash. Maybe, they ask for $20 to pick up some office supplies, but the supplies only end up costing $15.

Afterward, the cashier will issue a check worth INR 90 to replenish the fund. For additional security, you can require the custodian to keep a log of who refunds are given to. 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. Access more informative articles from QuickBooks that help grow and improve small businesses. QuickBooks also provides a wide array of outstanding software that further enhances your business’ financial wellbeing. Small business owners will usually be the custodians for their own business.

• Setting a budget helps you and your employees avoid impulse purchases.
• In another scenario, a large corporation may have a petty cash fund of $500.
• In the total amount column, enter the total petty cash expenses, and this is the amount you’ll ask for as petty cash reimbursement.
• Through real-world examples, we’ve seen how petty cash is used and accounted for, and by following best practices, companies can maintain control over their small yet significant expenditures.
• You must create journal entries that monitor and record all petty cash transactions, just like any other transaction.
• No setup is required other than creating an SOP and physically securing cash.
• Petty cash procedures incur costs for secure storage, insurance, and potential losses from theft or accidents.

Businesses use over-accounts or under-accounts to enforce the fund’s balance during adjustments. Supervisory petty cash obligations generally include enforcement of petty cash rules and regulations, demands for supplies and payment of funds. They typically have duties that include enforcement of petty cash rules and regulations, demands for supplies and payment of funds. Petty cash is helpful for small transactions where cheque or corporate credit card creation is inappropriate.