Petty Cash

What is Petty Cash?

Petty cash is a small amount of cash that a business keeps on hand for small, everyday expenses like buying office supplies, stationery, refreshment, paying for parking, or making small purchases for the business. The business usually has a designated person, usually called petty cashier, to keep track of the petty cash and make sure it is used correctly. For the purpose of good internal control, petty cash is meant to be for insignificant expenses, it’s not intended for large purchases or big transactions.

Ideal system of Petty Cash Fund

Imprest system is recommended. Under this system, a fixed amount of cash is kept on hand and is used to make small purchases. The petty cash custodian is responsible for keeping track of all expenses and making sure that the cash is replenished as needed. Using this system, the Petty Cash will remain dormant at a constant amount. For instance, if we keep a float of $500, then the Petty Cash account will always report a debit balance of $500. If the petty cashier has paid out $384, it will replenish exactly $384 to keep the balance to the fixed amount of $500.

Given the high inherent risk associated with cash due to its liquidity and susceptibility to theft, it is advisable to maintain a low cash balance. In doing so, the potential loss in the event of theft will be minimized.

Petty Cash Voucher

A petty cash voucher serves as a formal document for documenting and tracking minor expenses incurred using the business’s petty cash fund. Approval from the relevant department head is typically required before the voucher can be processed. Supporting documentation, such as receipts, must be provided by the claimants as evidence of the expenses incurred. The petty cashier will verify the authenticity of these receipts, then cancel or stamp them with “PAID” to prevent any potential duplicate claims.

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