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Petty cash: What it is and how it's used

January 12, 2023
When it comes to running a small business, you’ll know that staying on top of your financial affairs is critical when it comes to your cash flow.However, it’s all too easy overlook the small things. From postage stamps to stationery, these miscellaneous business expenses add up, and without proper tracking can leave your balance sheet looking a little out of sorts.Here’s where petty cash comes in. In this article, we’ll be covering what petty cash is, what sort of things you can spend petty cash on, and how to keep track of it.

What is petty cash?

Otherwise known as a petty cash fund, petty cash is a small amount of money set aside to fund ad hoc and small purchases. The amount of petty cash each business sets aside typically ranges between £25 to £100, but can be more for larger business.Since petty cash is usually a mixture of coins and banknotes, you’ll ideally need a safe place to store this cash, such as a petty cash tin or lockbox. While petty cash purchases won’t need to go through a purchase order system, they’ll still need to be accounted for.While anyone can request to use the petty cash fund, it’s important that only a few trust individuals, such as the CEO or Finance Manager, have access to the cash to avoid theft or misuse.

Petty cash expenses

You’ll typically spend petty cash on small, ad hoc items, such as:
    Office supplies, such as printer ink or stationeryEmployee reimbursements for small amounts, such as a bus ticket to a client meeting in townOne-off small expenses, such as a birthday cake or a leaving card

How to manage petty cash

    Appoint a petty cash custodian. This person is responsible for the money in the petty cash account, authorising petty cash transactions and replenishing the tin with small amounts of cash withdrawn from an ATM.Make a petty cash policy. With a policy in place, you’ll have a standardised practice in place for when someone wants to use money from the petty cash fund, such as who they need to go to and what exactly the business considers to be a petty cash expense.Keep track of your petty cash balance. This can be done either through issuing petty cash vouchers, or by keep a petty cash book or petty cash log.

Petty cash vouchers

Petty cash vouchers are issued whenever petty cash is used to fund an expense. On this voucher, you can expect to find:
    Purchase date (date the money is withdrawn)Item purchasedTotal amount withdrawnWho authorised the voucherAny receipts attachedUnique voucher number
Petty cash voucher template example

Petty cash book

Alternatively, you can use a petty cash book to track petty cash expenditure. Available to buy from most stationery shops, you can make a journal entry for every time money is added or removed from the petty cash box, such as:
    Items purchasedPurchase totalDate of purchase

Do I need to keep records?

In short, yes: you’ll need to get a record-keeping system in place to keep track of your petty cash receipts. This is so you can get a real-time view of the actual cash in your business bank account, as well as ensuring your financial statements are up to date.Ideally, you should be reconciling your petty cash records at least once a month, but should reconcile them more often if you find the petty cash tin is being used on a regular basis.As petty cash is deemed a company asset, you should reconcile your petty cash expenditure when managing your bookkeeping affairs, with your petty cash expenses visible in both your balance sheet and profit and loss sheet.
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