What Is Petty Cash?

Petty Cash is also the title of the general ledger current asset account that reports the amount of the company’s petty cash. The amount of petty cash will vary by company and may be in the range of $30 to $300. Some businesses may appoint a person to approve petty cash usage and oversee the funds available.

The important thing is to monitor your petty cash and keep track of it on a ledger. Therefore, it is only appropriate to keep petty cash on hand when a trusted employee can keep an eye on it. Do you need to stop and grab donuts for this morning’s staff meeting? Maybe you have an unexpected client drop by and you want to send out for bottled water or soft drinks. Small businesses handle small expenses like this by using a petty cash fund. If the petty cash fund does not balance, it needs to be investigated immediately.

Since the amount involved is usually small, petty cash can be used immediately by employees who are previously authorised. Petty cash can be used to avoid the considerably more cumbersome check authorization, printing, and signing process. Instead, petty cash payments are quick and easy, where the petty cash custodian merely has to hand over a small amount of cash to complete a payment transaction.

In the financial world, it also refers to a company’s highly liquid assets—funds in checking or other bank accounts, money market funds, short-term debt instruments, or other cash equivalents. Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.” Petty cash is a perfect solution for small purchases and minor expenses. In comparison to using the company’s account to pay for these and flooding the accounting team with receipts, it’s much faster and more effective. Accounting records replenishing the petty cash fund as a debit to the petty cash and credit to the cash account. Most enterprises handle their business expenses through petty cash funds.

• The majority of petty cash funds are established to enable departments to make small, emergency purchases where a purchase order is not cost effective or a purchasing card cannot be used.
• You should deposit the surplus petty cash into the company bank account.
• The petty cash log should include the date, details of the transaction, the cash you put into petty cash, the amount distributed, and a running balance.
• They’re also responsible for the safekeeping of the physical cash and possess the key to the lockbox where the cash and receipts are kept.
• The information in this publication does not constitute legal, tax or other professional advice from Wise Payments Limited or its affiliates.

We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account accounting methods to determine salvage value to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. “Petty cash” and “cash on hand” sound a lot alike, and they do overlap. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.

Example of Petty Cash Accounting

Read this article to discover what petty cash is, its different procedures, and how to manage it. Typically, companies keep between $30-$300 in their petty cash funds. The use of petty cash is only appropriate for small, erratic expenses that pop up unexpectedly. Even then, a petty cash fund is only appropriate if there is someone to monitor it and track the use of the money. A petty cash fund gives a small business the flexibility of quickly reimbursing or paying small expenditures without having to write a company check or use a company credit card.

You should deposit the surplus petty cash into the company bank account. Since Heather is running out of cash, she may ask for replenishment. Before going to the cashier, she should first complete the bottom of the petty cash log. In the petty cash policy document, we should state that the petty cash fund is $500 with Heather Smith as the custodian. She should also sign the document to transfer the petty cash fund accountability to her.

You’ll also want to decide the replenishment point, which is where your expenses are recorded, and a new check is written to bring the petty cash total back to its original amount. For example, if your petty cash fund is $100, you may want to reimburse the fund when it drops below $15. Petty cash is the money a business keeps on hand to pay for miscellaneous purchases. Most purchases made with petty cash are unexpected expenses that can pop up, such as morning coffee for a meeting or dinner for an employee working overtime. In such cases, opting for a multi-currency account offered by Wise Business can eliminate the complexity of having multiple cards for different locations. With Wise Business expense cards you can improve petty cash management by providing a better oversight since the transactions are easily trackable on the app.

Replenishing petty cash is usually scheduled at the end of an accounting period. Accountants typically log this into the general ledger both as credits to the petty cash account and debits to expense accounts. As part of a company’s cash, a petty cash fund is drawn on its checking account, cashing that check and giving the currency and coins to the custodian.

At this time, the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer. If new funds are needed, the cashier writes a new check to fund the petty cash drawer and takes, in exchange, the receipts from the purchases that depleted the cash. The majority of petty cash funds are established to enable departments to make small, emergency purchases where a purchase order is not cost effective or a purchasing card cannot be used.

Grow and Improve Your Business With QuickBooks Software!

Petty cash is a small amount of cash that is used to make incidental cash purchases and reimbursements, such as for delivered meals. Petty cash can mitigate the effects of the more cumbersome accounts payable process, which involves the issuance of a check. If you’re looking to manage your petty cash fund well, it will take time and effort. With QuickBooks’ cloud accounting software, you’ll not only be able to access your financial information on the go, but you’ll also be able to save time and money and ensure data security. In the total amount column, enter the total petty cash expenses, and this is the amount you’ll ask for as petty cash reimbursement. So, the ending balance in the petty cash log is the difference between the beginning balance and the total petty cash expenses.

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For example, for Jane to get reimbursed for the donuts she purchased for the meeting, she needs to provide a receipt. The receipt will be used later as back up for recording the petty cash transaction as an expense in your general ledger. Jane stops to pick up two boxes of donuts, leaving her with $5 in her wallet. Fortunately, her office has a petty cash fund, which her boss immediately reimburses her from, so Jane doesn’t have to submit an expense report and wait for weeks to be reimbursed. Oversight of petty cash is important because of the potential for abuse. When the fund gets low, e.g. $20 remaining, the custodian requests a top up and submits the vouchers for reimbursement.

Petty Cash Fund Procedure

Obviously, companies don’t want lots of cash just sitting around in the office. The amounts vary between companies but may be anywhere from $50 to $500. This amount is usually spent over a period of a month or two, and is replenished when necessary. This procedure is applicable to every University department, administrative office, and affiliated organization involved in handling any University cash.

Ultimately, it’s the accounting team’s responsibility to include these expenses in the general ledger. Since, by definition, petty cash is still a company’s funds, it, too, has to appear on financial statements. The term “petty cash” refers to the small cash fund a business keeps on hand to cover small emergency and unexpected expenses. The term “cash on hand” refers to all the liquid assets a business has.

Petty Cash is an important financial term used in business, and it signifies a small amount of cash kept on hand for miscellaneous expenses. It’s crucial because it allows for the efficient handling of small, unplanned expenses without going through the cumbersome process of making a formal cash withdrawal. It’s accounted for through the ‘Petty Cash Account’ and usually kept under lock and key, tracked through a record, the petty cash log, and constantly audited for discrepancies. For instance, it can be used for minor necessities like office supplies or for reimbursing minor travel expenses. Thus, understanding and effectively managing Petty Cash is a key facet of healthy financial management in a business setting.

That employee could be reimbursed later using petty cash, or you could give them money from petty cash and have them bring you the change and receipt. The petty cash account covers business-related expenses generally categorized as miscellaneous expenses. Business owners usually keep a small amount of cash in a safe or lockbox that they use to pay for unexpected items. In reality, the balance in the petty cash account is higher than the amount of cash actually in the petty cash box, since the cash in the box is continually being paid out. However, the difference is so minor that it is completely immaterial to the results in the financial statements.