Petty Cash: How to Set It Up, Record It & Keep It From Leaking
Petty cash is a small fund of physical cash kept on hand for expenses too minor for a check or card — courier fees, office supplies on a run, a client's parking. Simple in theory; in practice it's the most casually managed money in most small businesses, and the place where small leaks become habits. This guide covers the standard way to run it — the imprest system — with the exact journal entries, a reconciliation routine, and the three controls that keep a convenience fund from becoming a slush fund.
Setting up a petty cash fund (the imprest system)
- Pick a fixed float: $100–$500 for most small businesses — enough for two to four weeks of small spends, small enough that a loss stings rather than wounds.
- Assign one custodian: a single named person holds the box and answers for it. Shared responsibility is no responsibility.
- Fund it once: withdraw the float from the bank and record the establishment entry (below). Under the imprest system, the fund's total value — cash plus receipts — always equals the float.
- Voucher every spend: each disbursement gets a slip (date, amount, purpose, who received it) with the receipt stapled to it. No receipt, no reimbursement — set that rule on day one, not after the first argument.
The petty cash journal entries
Establishing the $300 fund:
Cr Cash (Bank) 300
Replenishing after spending $180 ($95 supplies, $60 postage, $25 travel): individual spends aren't journalized as they happen — expenses are recorded at replenishment, from the vouchers:
Dr Postage Expense 60
Dr Travel Expense 25
Cr Cash (Bank) 180
Note the Petty Cash account itself doesn't move at replenishment — it stays at the $300 float. If cash plus receipts come up short, the gap is booked to a Cash Over and Short expense account, and a recurring shortage is a control problem, not a rounding one. (More worked entries in our journal entry examples guide.)
Monthly reconciliation — 5 minutes, non-negotiable
Count the cash, total the vouchers, confirm the two sum to the float, then replenish. Do it monthly (or whenever the fund runs low), ideally with someone other than the custodian counting. The whole routine takes minutes — skipping it is how "petty" cash quietly stops being petty. If reconciling anything monthly sounds like the thing your business never gets around to, that's precisely what our bookkeeping service exists for — petty cash included.
Three controls that stop leakage
- Receipts or it didn't happen. The voucher rule, enforced without exceptions — including for the owner. Especially for the owner.
- A spending ceiling per transaction ($25–$50): anything larger goes through normal accounts payable where approval and matching controls exist.
- Surprise counts. An unannounced count once a quarter changes behavior more than any written policy. It's the smallest version of the control mindset that recovered $50K for a retail client — verify, don't assume.
One honest modern note: many businesses are replacing petty cash entirely with prepaid expense cards, which self-document every spend. If your petty cash box exists mostly out of habit, that switch may be the better control. Until then, run the imprest system properly — it's twenty minutes a month for money that's actually accounted for.
Small Leaks Sink Margins.
Petty cash is the smallest example of a bigger discipline: money that's tracked, reconciled, and controlled. Our Ex-PwC CA & ACCA team builds that discipline into your whole finance function — books, controls, and reporting. Book a free 30-minute call.
Book a Free 30-Min CallFrequently Asked Questions
A small fund of physical cash ($100–$500 for most small businesses) kept on hand for minor expenses that don't warrant a check or card payment — postage, small supplies, parking. It's managed under a fixed-float (imprest) system with receipts for every spend.
The standard petty cash method: the fund is set at a fixed amount (the float), and at all times cash plus receipts must equal that float. Expenses are recorded when the fund is replenished back to the float, using the receipts as the source documents.
To establish: debit Petty Cash, credit Cash for the float. To replenish: debit each expense account per the receipts, credit Cash for the total spent. The Petty Cash account itself stays at the float amount under the imprest system.
Enough to cover two to four weeks of typical small expenses without constant replenishment — $100 to $500 for most small businesses. If you're replenishing weekly, raise the float; if receipts show large purchases, lower the per-transaction limit instead.
One named custodian who controls access and answers for the count, with someone else (owner or bookkeeper) verifying reconciliations. Separating custody from verification is the core control.
Increasingly, no — prepaid expense cards self-document every transaction and remove the counting entirely. But if your business keeps physical cash for any reason, the imprest system with vouchers and monthly reconciliation is the only defensible way to run it.