What is petty cash? 

Petty cash is a small amount of money kept on hand to cover minor, day-to-day business expenses.

Think of it as the office “emergency” wallet—used for quick purchases like office supplies, coffee for a client meeting, or a courier fee.

It’s not meant for major expenses but plays a big role in keeping operations running smoothly without the hassle of writing cheques or initiating formal payment processes for every minor expense. 

This blog explores what petty cash is, why it matters for your business finances, how to manage it step by step, and real-world examples to guide you.

You’ll learn everything you need to know to keep this fund ready for those unexpected, everyday expenses. 

Why do businesses use petty cash funds?

You might wonder, “why keep physical cash around when you already have online banking and business credit cards?” Petty cash offers convenience, speed, and flexibility for handling minor, day-to-day expenses. 

So, what is the purpose of the petty cash fund?

It’s designed to cover small, routine purchases without the need for formal payment processes.

This helps your business operate more efficiently by allowing quick access to cash when it’s needed most. 

Here’s an overview of why businesses rely on petty cash funds: 

Fast transactions

You don’t need approval chains of long processes to buy day-to-day supplies like a notepad or pay a local delivery fee. 

Reduce administrative burden

No need to raise a purchase order to wait for supplier invoices for small, non-recurring costs. 

Employee empowerment

Staff can manage minor purchases without jumping through hoops. 

Operational continuity

Teams can act fast in the moment—especially useful in retail, hospitality, or events.

Types of petty cash

Not all petty cash funds are created equal.

Depending on how your business operates and the specific needs of different teams, you might use different types of petty cash systems.

Here’s a breakdown of the most common types: 

General petty cash

Used for routine small expenses like office supplies or local travel.

It’s managed by a custodian and replenished as needed. 

Imprest petty cash

A fixed-amount system where the fund is restored to its original balance after each cycle.

This method simplifies tracking and reconciliation. 

Emergency petty cash

Set aside for urgent, unexpected expenses.

Access is typically restricted, and all use must be well-documented. 

Discretionary petty cash

Allows department heads or team leads to manage small purchases independently, within set limits and policies. 

Examples of petty cash usage 

To help your team get a clearer picture, here are some typical situations where petty cash comes in handy: 

• Buying postage stamps for mailing out invoices or documents. 
• Purchasing refreshments for a client meeting or internal team gathering. 
• Refilling everyday office supplies, such as pens, notepads, or sticky notes. 
• Paying for a local taxi fare when an employee runs a quick errand or attends a nearby meeting.

These small but necessary expenses can add up, and petty cash ensures they’re handled quickly—without disrupting your workflow or involving formal approval processes. 

Petty cash book example 

Here’s a simple petty cash example of how these transactions might be recorded: 

Date	Description	Voucher number	Amount
04/03/2025	Office pens and paper	001	RA15.50
04/04/2025	Taxi fare for delivery	002	RA22.00
04/06/2025	Client meeting refreshments	003	RA30.00

Is petty cash considered an asset? 

If you’ve ever wondered, “is petty cash an asset?”—the answer is yes, petty cash is indeed considered an asset.

More specifically, it’s classified as a current asset on your business’s balance sheet because it represents a short-term resource you can access and use quickly. 

Here’s how petty cash fits into your accounting framework: 

• Type: asset. 
• Classification: current asset. 
• Balance sheet placement: under “cash and cash equivalents”. 

Because it’s physical cash your business owns and can use at any time, it contributes to your overall liquidity.

And while the amount might be small, it still plays an important role in keeping your financial records accurate.  

Petty cash versus cash on hand

While often used interchangeably, petty cash and cash on hand serve different purposes in accounting. 

Petty cash

A designated fund used for small, day-to-day business expenses. It’s tracked separately with its own log and custodian. 

Cash on hand

Broader term that refers to all physical cash a business has available at a given time—including petty cash, cash in tills, or undeposited funds. 

In short, petty cash is a subset of cash on hand, set aside for specific operational use. 

Petty cash management and accounting treatment

Managing petty cash isn’t complicated, but it does require clear processes and accountability.

Without proper structure, small expenses can easily slip through the cracks—leading to discrepancies, poor tracking, or even misuse, and it can damage your cash flow. 

That’s where petty cash accounting comes in.

It’s the practice of accurately recording, monitoring, and reconciling petty cash transactions to maintain clean, audit-ready books. 

If you’re responsible for overseeing your business’s petty cash, following a consistent routine will help make sure everything stays organised, transparent, and fully aligned with accounting best practices.

Here’s a step-by-step to properly set up and maintain your petty cash fund: 

1. Assign a custodian 

Before managing a petty cash fund, businesses must establish clear internal policies and controls to ensure funds are used responsibly.

This includes setting guidelines for spending limits, approved expense types, and documentation requirements.

To enforce these controls, companies typically assign a small number of individuals—often called petty cashiers—to manage and approve petty cash disbursements. 

In most organisations, a petty cash fund custodian is formally appointed to oversee the fund.

This person is typically part of the finance or admin team and plays a critical role in maintaining accountability. 

The custodian’s duties generally include: 

• Enforcing petty cash rules and internal policies. 
• Authorising and approving disbursements. 
• Collecting and reviewing receipts. 
• Logging all transactions in the petty cash record. 
• Requesting replenishments when funds run low. 
• Performing or assisting with monthly reconciliations.

By assigning a dedicated custodian, your business ensures proper oversight, reduces the risk of misuse, and maintains accurate financial records. 

2. Set an initial fund amount 

Decide how much cash to keep on hand based on your team’s average needs.

Many small businesses start with RA100 to RA300, depending on the volume of petty expenses. 

3. Establish a petty cash policy 

Before the fund is in use, create a clear petty cash policy to guide how it’s managed.

This policy should outline: 

• Who is authorised to access the fund. 
• What types of expenses are allowed (e.g., office supplies, local travel). 
• Spending limits per transaction. 
• Required documentation (receipts, purpose of spend). 
• Reimbursement and reconciliation procedures.

Having this policy in writing helps prevent misuse, promotes consistency, and gives employees clear expectations when requesting or spending petty cash. 

4. Store the cash securely 

Keep the fund in a locked drawer or secure cash box, ideally in a restricted area with limited access. 

5. Track every transaction 

Use a petty cash log, spreadsheet, or accounting software to record each transaction.

Include the date, amount, reason for the expense, and the name of the person who received the cash. 

6. Collect receipts 

Always collect a receipt or proof of purchase for each expense. Attach the receipt to the corresponding entry in your log to support accurate recordkeeping. 

7. Reimburse and replenish the fund as needed 

When the fund runs low, it’s time to replenish it so you can continue covering small expenses without interruption. 

The petty cash reimbursement process involves: 

1. Gathering all receipts and vouchers that document recent expenses. 
2. Completing and submit a reimbursement form to your accounts payable team. 
3. The accounts team issuing a cheque or bank transfer to restore the fund to its original amount. 

Example of journal entry for replenishment 

Debit	Office supplies	RA40.50
Debit	Travel expenses	RA22.00
Credit	Cash / bank account	RA62.50

This entry reflects how the total spent is distributed across relevant expense categories. 

At this point, petty cash management software can be a major time-saver.

Manual logs and paper receipts are easy to lose or misfile.

Digital tools let you scan, store, and track petty cash transactions all in one place—streamlining your accounting process. 

8. Reconcile regularly 

Reconciliation involves verifying that the sum of the remaining cash and recorded expenses matches the original petty cash amount.

This step ensures accuracy and helps identify any discrepancies early. 

How to reconcile: 

1. Count the remaining cash in the petty cash box. 
2. Total all receipts and vouchers since the last reconciliation. 
3. Confirm that: remaining cash + receipts = original petty cash amount 
4. Investigate and resolve any differences immediately. 

Aim to reconcile the fund at least once a month—or more frequently if petty cash is used often.

Regular reconciliation helps you maintain financial control, detect errors or fraud, and ensure compliance with your internal policy. 

Recording petty cash transactions

Accurate records equal happy accountants.

Proper documentation is key to maintaining transparency, tracking spending, and making sure your books stay in good shape. 

Every petty cash transaction—no matter how small—should be recorded clearly and consistently.

This includes logging the expense, collecting a receipt, and noting who used the funds and why. 

A petty cash journal entry example 

When you first establish a petty cash fund, you’ll need to record the transfer of funds from your main bank account to the petty cash account.

This operation makes sure the transaction is properly reflected in your general ledger. 

Account	Debit	Credit
Petty cash	RA200.00
Cash / bank account		RA200.00

This entry decreases your main cash or bank account by RA200 and increases your petty cash account by the same amount—essentially reallocating funds for small business expenses. 

Example journal entry for recording a purchase 

Imagine an employee uses RA15.50 from the petty cash fund to purchase office supplies.

You would record that expense as follows: 

Account	Debit	Credit
Office supplies	RA15.50
Petty cash		RA15.50

This entry records the expense under ‘office supplies’ and reduces the petty cash account accordingly.

Always make sure a receipt is collected and attached to the petty cash log for documentation. 

Make sure each transaction record includes: 

• Date of purchase 
• Amount spent 
• Description of the expense (what it was for) 
• Receipt or proof of purchase 
• Name of the employee who made the purchase 

You can track this information using a petty cash log, spreadsheet, or accounting software.

Keeping a consistent record not only simplifies reconciliation and reimbursement but also helps prevent errors and misuse. 

Best practices for petty cash management

To keep your petty cash fund secure, organised, and easy to manage, it’s important to follow a few proven best practices: 

• Set a spending limit for the fund to control how much cash is available at any given time. 
• Use a petty cash log or dedicated software to track every transaction in real time. 
• Reconcile the fund regularly—ideally once a month—to make sure all records match the actual cash on hand. 
• Keep all receipts and vouchers to support each transaction and simplify audits. 
• Limit access by designating only a few authorised employees to handle the fund. 
• Store the cash securely in a locked box or drawer with restricted access. 
• Train employees on your petty cash policy so everyone understands the rules and expectations. 

Leveraging technology for effective petty cash control

Petty cash may cover small expenses, but poor management can create bigger problems for you—like missing receipts, unapproved purchases, or discrepancies in your financial records.

That’s why it’s important to automate management which will save you time and increase accuracy.  

Cash flow management tools, like using accounting software, streamlines the entire process and reduces manual effort.

With the right solution, your accounting team can: 

• Digitise expense tracking to eliminate handwritten logs. 
• Automate reconciliation for faster, more accurate balancing. 
• Securely store receipts and vouchers in one centralised system. 
• Generate detailed petty cash reports for audits and internal reviews. 
• Gain real-time visibility into how funds are being spent and by whom.

Final thoughts

Petty cash may represent a small portion of your overall budget, but it plays a meaningful role in keeping daily operations running smoothly.

With a solid policy, proper oversight, and the right technology, you can manage petty cash with confidence and control. 

Explore how cash flow management software can help you track every transaction—no matter how small—and keep your finances accurate and audit-ready.