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Using Petty Cash for Your Small Business

why do businesses use petty cash funds

You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise 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. Keeps the fund under lock and key at all times, with the key in the custodian’s possession. Does not permit others access to the cash in the fund by anyone for any reason and under any circumstances. Petty cash funds are kept separate and not commingled with any other funds. Overages in the fund must be deposited with the Cashier’s Office located in Smith Hall.

Using a petty cash log or petty cash slips will help capture these expenses so they can be used to offset income for business tax purposes. The issue with petty cash expenses is that tracking them is complex, and you might easily miss registering a payment.


When an employee takes money from the petty cash fund, the petty cash custodian must record who took the money, the amount taken, what the money is for, and the date. The petty cash receipts along with the remaining petty cash balance should equal the initial petty cash fund amount — meaning the original amount that was placed in the petty cash drawer or box. Simply put, petty cash expenses lack the immediate record generated by a credit card purchase, for example. Improper or overlooked log entries can lead to errors, and supporting documents like receipts and invoices can be misplaced or overlooked. Note that this is done in addition to replenishing the fund whenever it is running low. The process includes a set of rules, policies, form templates, procedures and controls that a company uses to manage its petty cash fund.

why do businesses use petty cash funds

When you first dip into the petty cash fund, you should start a log of the transactions that go through the box. It can be a simple handwritten accounting log, an online spreadsheet or using a pre-made template that you’ve downloaded to save time. With real-time spend updates and built-in spending limits by category, you can access all the benefits of a petty cash fund without the risk of human error, fraud or theft.

Who authorises the use of Petty Cash?

Worry no more, in this guide we will cover what Petty Cash is, who can use it, how to register it and other solutions you can use for your business expenses. The employee petty cash receives permission from the budget unit head to make a cash purchase from personal funds. Expense reconciliation can be an immensely tedious and complex task.

why do businesses use petty cash funds

The custodian will be the primary person in the organization responsible for managing the petty cash. Designating a custodian establishes accountability and reduces the incidence of error or fraud by minimizing the number of employees who have access to the cash in the fund.

How does Petty Cash Work?

Companies, whether large or small, don’t want to lose deductions on their financial statements or lack visibility into where and how resources are spent. Typically, petty cash accounts are reimbursed at a fixed time period. Many small businesses will do this monthly, which ensures that the expenses are recognized within the proper accounting period. In the event that all of the cash in the account is used before the end of the established time period, it can be replenished in the same way at any time more cash is needed.

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When your petty cash fund starts to run dry, it’s time to record the expenses and reimburse the fund. To reconcile, you’ll need to match your receipts with the amounts recorded on the petty cash form. If you’re ready to set up a petty cash fund for your office but aren’t sure where to begin, follow the simple steps below to have your petty cash fund operational in no time.

What Is an Example of Petty Cash?

Most retail businesses keep a cash drawer as do healthcare practices. A slight delay in tracking your petty cash expenses might lead to serious accounting blunders. Give specific instructions to the keeper or custodian on how to consider petty cash requests and cash allocation, how to fill out vouchers and when to request replenishment of petty cash boxes. For larger companies, the entire process for applying and approval can be automated for better record keeping. The receipts are also maintained in the online form so ease of access and better reconciliation. When petty cash is in the form of a debit card or prepaid card, approval is normally done after the expense occurs.

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Sometimes, especially in very small companies, the stack of petty cash vouchers serves as a log and the transaction details are entered into the bookkeeping system directly from the vouchers themselves. When the petty cash fund is established, a current asset account titled Petty Cash is added to the chart of accounts in the accounting system. However, a larger company may need a separate fund for each division (e.g., building, office or department), in which case two people per division will be provided with access to petty cash. The particular person who makes the petty cash payment may not have access to a company card or check. While a petty cash fund may not be necessary if you work solo, if you have even one employee, it may be worth it to set up a petty cash fund to manage those unexpected expenses properly. Your available cash should always match the amount recorded in your petty cash log. If it doesn’t, you’ll need to account for any cash over and short.