Key takeaways
- Under the imprest system, cash plus receipts should always equal the fixed fund amount.
- Most small businesses keep enough to cover about a month of small purchases, often between $100 and $500.
- Every payout needs a receipt or signed voucher; the reconciliation is only as good as those slips.
- The IRS expects records for all business expenses, cash included. See Publication 583.
What is petty cash?
Petty cash is the cash box in the office drawer. It’s for the small, unpredictable costs that come up during a normal week: stamps, a cleaning product, milk for the kitchen, a courier tip. Using a card for each would be awkward, and asking employees to pay and claim every $6 purchase creates more paperwork than it’s worth.
The risk with petty cash is just as obvious: cash disappears easily. The imprest system and regular reconciliation are what keep it under control.
Track every petty cash spend with a photo of the receipt using the Manage Receipt app.
How the imprest system works
- Set the fundWrite a check or withdraw a fixed amount, say $300.
- Pay outEach purchase is paid from the box with a receipt or voucher.
- CountCash on hand plus receipts should equal $300.
- ReplenishAdd back exactly what was spent.
- RecordPost the expenses to the right categories.
The fund amount never changes unless you decide to raise or lower it. That’s the point: at any moment, cash plus receipts must add up to the same number, so any gap shows up immediately.
Choosing the fund amount
Look at a typical month of small purchases and set the fund a bit above that. For many small offices, it’s $100 to $500. Too small, and you’re replenishing every few days. Too large, and you’re holding cash that could be stolen or misplaced. Set a per-purchase limit too, such as $50; anything larger should go through a card or normal reimbursement.
Vouchers and records
Every payout needs paperwork. Usually that’s the store receipt. When there isn’t one, such as a tip or parking meter, use a petty cash voucher showing:
- Date and amount
- What it was for and the expense category
- Who received the cash
- Signature of the person approving it
Keep a simple log next to the box, or better, a digital one, so the custodian isn’t relying on a pile of slips.
Reconciliation formula
Cash on hand + receipts and vouchers = fund amount. If the left side is less, the fund is short. If it’s more, it’s over. Record the difference in a “cash over and short” account.
The fund is set at $300. At month end, the custodian counts:
| Item | Amount |
|---|---|
| Postage receipts | $58.40 |
| Office supplies receipts | $71.25 |
| Kitchen supplies receipts | $47.75 |
| Courier tip voucher | $35.00 |
| Total receipts and vouchers | $212.40 |
| Cash counted in the box | $86.10 |
| Cash + receipts | $298.50 |
| Difference vs $300 fund | $1.50 short |
To bring the fund back to $300, replenish $213.90: $212.40 of expenses plus the $1.50 shortage.
Journal entries
| Event | Debit | Credit |
|---|---|---|
| Set up the fund | Petty cash $300 | Cash (bank) $300 |
| Replenish | Postage $58.40 · Office supplies $71.25 · Kitchen supplies $47.75 · Miscellaneous $35.00 · Cash over and short $1.50 | Cash (bank) $213.90 |
The petty cash account itself is only touched when you create the fund or change its size. Day-to-day spending flows through expense accounts at replenishment.
Petty cash vs reimbursement
| Petty cash | Reimbursement | |
|---|---|---|
| Who pays first | The business, from the box | The employee |
| Best for | Tiny, frequent office costs | Travel, larger or irregular costs |
| Main risk | Theft, missing slips | Late claims, lost receipts |
| Admin | Count and reconcile monthly | Review each expense report |
Petty cash is less common than it used to be, because company cards and quick digital reimbursement cover most needs. It still makes sense for shops, clinics and offices with frequent small cash purchases.
Petty cash controls
- One named custodian for the fund, and a different person who reviews it.
- A locked box, kept out of sight.
- A maximum per purchase, such as $50.
- No IOUs, personal loans or cashing checks from the fund.
- Surprise counts now and then, not just at month end.
- Investigate any repeated shortages, however small.
Replace the shoebox of slips
Scan each petty cash receipt into Manage Receipt as soon as the purchase is made. The app categorizes it and keeps a running digital log, so month-end reconciliation means checking a list against the cash in the box, not sorting crumpled paper.
Explore AI Receipt ScannerFrequently asked questions
How much petty cash should a business keep?
Enough to cover roughly one month of small purchases, which for many small offices is $100 to $500. Review a few months of spending to set the amount, and add a per-purchase limit so larger costs go through a card or normal reimbursement instead.
What is the journal entry for petty cash?
To set up the fund, debit petty cash and credit your bank account. When you replenish, debit each expense account for what was spent, debit or credit cash over and short for any difference, and credit the bank account for the total cash added back.
Is petty cash still used?
Yes, but less than before. Company cards and fast digital reimbursement have replaced it in many offices. It’s still useful for retail shops, clinics, restaurants and offices that regularly need small amounts of cash for postage, tips, parking or supplies.
Who should manage petty cash?
Appoint one custodian who holds the box, pays out cash and keeps receipts, and have someone else review the reconciliation. Separating these duties makes mistakes and theft easier to spot. Keep the box locked and count it at least monthly.