Petty Cash Management Guide

What a petty cash fund is
The controls

Petty cash management is how a business controls a small, fixed amount of cash kept on hand for minor purchases, such as postage or parking. One person looks after the cash, every payment gets a signed voucher or receipt, and at regular intervals someone counts the box, checks that cash plus receipts equals the fund, and tops the cash back up to the fixed amount.

Billed publishes this page. The definitions below come from the open textbook Principles of Accounting, Volume 1: Financial Accounting (OpenStax), section 8.4, Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries, opened on October 29, 2026. This is general information, not accounting or tax advice; ask your accountant where judgment is needed.

What a petty cash fund is

OpenStax: "A petty cash fund is a type of imprest account, which means that it contains a fixed amount of cash that is replaced as it is spent in order to maintain a set balance."

It exists for small purchases that don't suit the normal process: "a petty cash account allows employees to make small and necessary purchases to support the function of a business when it is not practical to go through the formal expense process." OpenStax adds: "In all cases, the amount of the purchase using petty cash would be considered to not be material in nature."

The controls

One custodian. Name one person responsible for the box, its key and its records, and a manager who approves payments.
A voucher or receipt for every payment. OpenStax: "A petty cash voucher is an important internal control document to trace the use of cash within a petty cash fund." It also says "The employee in charge of the petty cash box should sign each receipt when the purchase is made."
Cash plus receipts equals the fund. "At all times, the balance in the petty cash box should be equal to the cash in the box plus the receipts showing purchases."
Regular counts and replenishment. Count the box and top it up on a fixed schedule, such as monthly, and whenever the cash runs low.
Separate from other cash. Keep petty cash apart from the till, the owner's own money and the bank account, in a locked box.
Act on repeated shortages. OpenStax: "If a petty cash account is consistently short, this may be a warning sign that there is not a proper control of the account, and management may want to consider additional controls to better monitor petty cash."

The journal entries

OpenStax: "Entries are needed to (1) establish the fund, (2) increase or decrease the balance of the fund (replenish the fund as cash is used), and (3) adjust for overages and shortages of cash."

Establishing the fund: debit Petty Cash and credit Cash for the fund amount. Cash moves from the bank account to the box, and the Petty Cash balance stays at that amount unless you change the fund size.
Replenishing: debit each expense account for what the receipts show and credit Cash for the amount put back in the box.
Shortages and overages: OpenStax records a shortage as a debit to Cash Over and Short, which has the same effect as an expense, and an overage as a credit, which has the same effect as revenue.
Changing the fund size: to increase it, debit Petty Cash and credit Cash for the increase. To decrease it, OpenStax says "the previous entry would be reversed, with cash being debited and petty cash being credited."

Worked example: a month-end petty cash reconciliation

The business and figures here are a sample, invented for this example. A small office keeps a $200 petty cash fund, set up with a check from its bank account (debit Petty Cash $200, credit Cash $200).

1. Add up the vouchers for March:

Postage: $18.40.
Parking for a client visit: $12.00.
Cleaning supplies: $26.75.
Courier delivery: $35.00.
Office kitchen supplies: $14.50.
Total: $18.40 + $12.00 + $26.75 + $35.00 + $14.50 = $106.65.

2. Work out the cash that should be in the box: $200.00 − $106.65 = $93.35.

3. Count the cash: the box holds $91.35.

4. Find the difference: $93.35 − $91.35 = $2.00 short.

5. Replenish the fund with one journal entry:

Debit Postage Expense $18.40.
Debit Travel Expense $12.00.
Debit Supplies Expense $41.25 (cleaning $26.75 + kitchen $14.50).
Debit Delivery Expense $35.00.
Debit Cash Over and Short $2.00.
Credit Cash $108.65.

6. Check the entry and the box:

Debits: $18.40 + $12.00 + $41.25 + $35.00 + $2.00 = $108.65, equal to the $108.65 credit.
The box after topping up: $91.35 + $108.65 = $200.00, the fixed fund amount.

The Petty Cash account itself stays at $200 throughout. If the box comes up short again next month, review who has access and how vouchers are signed.

When petty cash is the wrong tool

Larger or regular purchases belong in your normal purchasing and expense policy, since petty cash is for amounts that aren't material.
Purchases by several people in several places can be easier to control with company cards or expense reimbursement.
Cash registers are separate. Keep the till's change float and petty cash in different places and records.

Where Billed fits

Billed publishes this page. Billed's expense and receipt tracking page says an expense in Billed records "who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry." Recording each petty cash purchase that way keeps the receipt with its category, so the totals for the replenishment entry are easy to find. The journal entries and the Petty Cash and Cash Over and Short accounts are kept in your books, yourself or with your accountant.

When this guide isn't for you

This page covers a single petty cash fund for a small business. If you run funds at several locations, hold foreign currency, or need audited internal controls, work with an accountant on your procedures.

Frequently Asked Questions

How much should a business keep in petty cash?

There's no set amount. Size the fund to cover the small purchases you expect between replenishments, based on your own vouchers. If you have to top it up before each scheduled count, increase the fund; if cash sits unused, reduce it.

What is an imprest petty cash fund?

It's a fund kept at a fixed amount. As cash is spent, it's replaced by receipts, and at each replenishment the business puts back exactly what was spent, so the cash returns to the fixed amount.

How do you reconcile petty cash?

Add up the vouchers, subtract the total from the fund amount to find the cash that should be there, and count the cash. Any difference is a shortage or an overage, recorded in Cash Over and Short when you replenish the fund.

How do you record a petty cash shortage?

Debit Cash Over and Short for the shortage as part of the replenishment entry, which has the same effect as an expense. An overage is credited to the same account.

Who should be in charge of petty cash?

One named custodian who keeps the box locked, collects a signed voucher or receipt for every payment, and presents the vouchers for each count. A different person, such as a manager or the owner, should approve payments and check the count.

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What Is Petty Cash Management?