Petty Cash
A small fund of cash kept on hand for minor business expenses and incidentals.
Petty cash is a small amount of physical money kept at a business location to cover minor, everyday expenses that are too small or impractical to pay by check or credit card. Typical petty cash purchases include office supplies, postage, coffee for the office, parking, and small emergency purchases.
Managing Petty Cash
A petty cash system typically works as follows: a set amount (often $100-$500) is withdrawn and placed in a locked box or drawer. When someone needs to make a small purchase, they take money from the fund and replace it with a receipt. When the fund runs low, the receipts are tallied, the expenses are recorded in the accounting system, and the fund is replenished to its original amount.
The key principle is that cash + receipts should always equal the original fund amount. Any discrepancy indicates missing documentation or errors.
Why It Matters
Despite the move toward digital payments, petty cash remains important for many businesses. It provides flexibility for small, unexpected expenses. However, petty cash is also one of the most vulnerable areas for fraud and errors, making proper documentation (keeping every receipt) essential for accountability and accurate bookkeeping.
Example
An office manager keeps $200 in petty cash. Over two weeks, the team uses it for printer paper ($15.99), parking for a client meeting ($12), stamps ($11.60), and a sympathy card for a colleague ($8.50). The manager collects all receipts, records $48.09 in expenses, and requests a replenishment check.
Related Terms
- Business Expense — Costs incurred in running a business
- Bookkeeping — Systematic recording of financial transactions
- Receipt Retention — Keeping receipts for required periods
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