Petty cash is a small amount of physical currency a business keeps on hand to pay for minor expenses where issuing a check or processing a card payment would be impractical. Typical funds run from $100 to $500 and cover things like postage, parking, small supplies, and refreshments.
Yes. Petty cash is a current asset, reported within cash and cash equivalents on the balance sheet. It is company money that simply happens to be held as physical currency rather than in a bank account.
The petty cash account balance stays fixed at the authorized fund amount under normal operation. What changes between replenishments is the mix inside the tin: less currency and more receipts, always summing to the same total.
Petty cash is almost always run on an imprest system, meaning the fund is set at a fixed amount and periodically topped back up to that amount. The mechanics are what make the control work:
EXAMPLE
A $300 fund has $82 in currency and $218 in vouchers. Those figures sum to $300, so the fund reconciles. The custodian submits the vouchers and receives a $218 check, bringing currency back to $300.
The fixed total is the control. Any point at which currency plus vouchers does not equal the authorized amount indicates a missing receipt, an unrecorded disbursement, or a shortage that needs explaining.
The log is the audit trail for a fund that otherwise leaves none. Each disbursement line should capture:
A voucher differs from a receipt and both are needed. The receipt is external evidence from the merchant; the voucher is the internal record authorizing the disbursement, signed by the recipient. A voucher without a receipt is an unsupported payment.
Petty cash involves three distinct entries, and the second one is where most errors occur.
EXAMPLE
Establishing a $300 fund
Debit: Petty Cash $300
Credit: Cash $300
This moves money between two asset accounts. No expense is recorded yet.
EXAMPLE
Replenishing after $218 of spending
Debit: Office Supplies $95
Debit: Postage $68
Debit: Travel $55
Credit: Cash $218
The expenses are recognized here, at replenishment, not at the moment each disbursement was made. Note that Petty Cash is not touched: the fund balance never changed.
EXAMPLE
Increasing the fund from $300 to $500
Debit: Petty Cash $200
Credit: Cash $200
Only a permanent change to the authorized amount touches the Petty Cash account.
The rule that resolves most confusion: the Petty Cash account is debited only when the fund is created or its authorized size changes. Routine replenishment credits Cash and debits the relevant expense accounts.
Reconciliation should happen at every replenishment and independently at period end, ideally by someone other than the custodian. A custodian who counts their own fund and reports the result provides no independent verification, which is the same segregation of duties problem that appears throughout cash handling.
Petty cash is the smallest balance on the balance sheet and, per dollar, one of the most frequently misappropriated. Physical currency leaves no electronic trail, individual amounts are too small to attract scrutiny, and the same person often holds, disburses, and records the fund.
The common failure modes are a custodian who is also the reconciler, missing receipts accepted without challenge, personal expenses reimbursed as business costs, and disbursements above the fund's intended limit that should have gone through normal AP.
Many businesses have moved away from petty cash entirely in favour of company cards or expense reimbursement, which produce an automatic transaction record. Where a fund is still genuinely needed, the meaningful controls are a named custodian, a stated per-transaction limit, a mandatory receipt policy, and independent reconciliation.
