Petty Cash: Definition, Uses & Management for Businesses

Petty cash refers to a small amount of hard currency that a businesses will keep on hand to pay for miscellaneous and unexpected items, such as team lunches, birthday cakes, or office snacks.  Petty cash is usually a relatively small amount, and is grouped with the general cash account on the balance sheetBalance SheetThe balance sheet is one of the three fundamental financial statements. The financial statements are key to both financial modeling and accounting. in current assets.

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.

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.  In this transaction, there’s no expense involved.  If money from the fund is used for expenses, the custodian will use petty cash receipts or vouchers to replace that cash.  When the fund is replenished, the expenses will be recorded in the general ledger.

Reconciliation Process

Reconciliation of the petty cash fund should be done periodically to ensure that the fund’s balance is correct. In reconciling the balances, the ending balance or remaining cash on the fund and all receipt charges should be equal to the original balance, which is usually carried over from the previous reporting period. The fund can be replenished back to the approved amount as required.

Internal Controls

No matter how large the balance is, it is important for companies to set up a good internal control system that keeps track of all cash inflows and outflowsCash Flow Statement​A cash flow Statement contains information on how much cash a company generated and used during a given period. from the petty cash account. For example, anyone who requires such cash should be required to write their name, the date, time, and the specific amount and description of the transaction.

All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information. The best way to control the account is to designate one person in the office to be responsible.

The petty cash voucher may look like this:

Related Readings

CFI offers the Financial Modeling & Valuation Analyst (FMVA)Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today!®Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

• Financial Statement NormalizationNormalizationFinancial statements normalization involves adjusting non-recurring expenses or revenues in financial statements or metrics so that they only reflect the usual transactions of a company. Financial statements often contain expenses that do not constitute a company's normal business operations
• Cash Flow StatementCash Flow Statement​A cash flow Statement contains information on how much cash a company generated and used during a given period.
• Projecting Balance Sheet ItemsProjecting Balance Sheet Line ItemsProjecting balance sheet line items involves analyzing working capital, PP&E, debt share capital and net income. This guide breaks down how to calculate
• Analysis of Financial StatementsAnalysis of Financial StatementsHow to perform Analysis of Financial Statements. This guide will teach you to perform financial statement analysis of the income statement,