Petty Cash Accounting

Overview of Petty Cash Accounting

Petty cash is a small reserve of cash kept on the premises to cover minor, everyday business expenses such as office supplies, coffee, or postage. Because the amount is limited, it’s easy to manage, but it still requires a disciplined accounting process to prevent errors, theft, or misuse.

Why Petty Cash Matters for Small Businesses

• Speed: Employees can obtain cash instantly without waiting for an invoice approval.
• Control: A single custodian and a clear replenishment process keep spending transparent.
• Record‑keeping: Proper journal entries ensure the petty cash fund is reflected accurately on the balance sheet.

Setting Up a Petty Cash Fund

1. Determine the fund size. Typical amounts range from $100 to $500, depending on the volume of cash‑based transactions.
2. Appoint a custodian. Choose one trusted employee to safeguard the cash and collect receipts.
3. Create the opening journal entry.

         Debit   Petty Cash   $XXX
         Credit  Cash (Bank)  $XXX
       

4. Label the cash box. Include the fund amount and date of the last replenishment.

Need a ready‑made template for your opening entry? Download our free Financial Statements Templates and customize the petty‑cash line item.

Recording Petty Cash Transactions

Each time cash is spent, the custodian collects a receipt and records the expense in the appropriate account. No journal entry is made at the moment of payment; instead, the cash balance simply decreases.

• Office supplies – $25 → Supplies Expense
• Courier fees – $12 → Delivery Expense
• Team lunch – $30 → Meals & Entertainment

Maintain a simple spreadsheet or use Automated Excel Financials to log these entries automatically.

Replenishing the Petty Cash Box

When the cash on hand falls below a pre‑defined threshold (e.g., $50), the custodian submits the accumulated receipts for reimbursement.

1. Summarize total receipts.
2. Generate a reimbursement check or electronic transfer for the same amount.
3. Record the replenishment journal entry:

         Debit   Petty Cash          $Total Receipts
         Credit  Cash (Bank)         $Total Receipts
       

4. Restock the cash box to its original fund size.

To streamline the reimbursement process, try our Accounts Receivable Excel Template, which can also handle petty‑cash reimbursements.

Industry‑Specific Examples

Retail Store

Typical petty cash uses include cash register change, small equipment repairs, and promotional giveaways. A weekly reconciliation ensures the cash drawer matches sales records.

Consulting Firm

Consultants often need cash for client lunches or mileage reimbursements. Track each expense by project code to keep client billing accurate.

Construction Site

On‑site purchases such as nails, safety gear, or temporary utilities are paid from petty cash. Assign a site supervisor as custodian and perform a bi‑weekly audit.

Petty Cash Management Checklist

Quick Reference: Petty Cash “Recipe”

1. Define fund size (e.g., $200).
2. Record opening entry (Debit Petty Cash, Credit Cash).
3. Spend cash, keep receipts.
4. When cash ≤ $50, total receipts.
5. Issue reimbursement check for total receipts.
6. Record replenishment entry (Debit Petty Cash, Credit Cash).
7. Restock to original $200.

This step‑by‑step guide works for any industry and keeps your books clean.

Next Steps

Implement a robust petty‑cash process today and monitor it with a visual dashboard. Explore the Financial Dashboard Excel to see cash‑flow trends, spot irregularities, and make data‑driven decisions.

Ready to upgrade your whole accounting workflow? Check out our Finance & Profit Growth Toolkit for templates, automation guides, and reporting tools.