Introduction to Accounting for Petty Cash

What you’ll learn to do: Establish and maintain a petty cash system

Some small but necessary expenses require immediate funds. The amount for these expenses is generally small, meaning a check isn’t required.

For such instances, every business has a separate fund to deal with small frequent expenditures. This fund is called a petty cash fund.

A cash register drawer full of paper money and coins. Petty cash is a convenient store of funds kept aside for small everyday expenses. These expenses are too small to disburse a check, thus petty cash is included in the “cash” account under current assets. Under the petty cash system, a fixed amount should be reserved and replenished frequently. All the regular business needs can be quickly taken care of by petty cash funds.

Examples of petty cash expenses include office supplies, cards or flowers for customers, catered lunches, postage, or any other small item, even maybe a run to Starbucks to boost the productivity of an impromptu meeting.

Most larger companies have debit or credit cards for these kinds of purchases or even a preloaded purchase card tied to the monthly budget, but those cards may be reserved for management. The process of controlling, recording, and reconciling petty cash is still instructive, even if your company doesn’t actually have a cash box sitting under the front desk.

Also, learning the petty cash system is a natural first step to learning how to control, record, and reconcile the larger transactions that flow through the checking account.