Petty Cash

Petty Cash Definition

Petty cash is a small amount of physical cash kept on hand for minor, everyday business expenses. Instead of writing a check or using a credit card for a $12 box of pens or a $7 parking fee, you pay from petty cash. It's tracked through a petty cash fund with receipts documenting every disbursement.

Petty Cash in Practice — Example

A small law office keeps $200 in a locked petty cash drawer. When a paralegal picks up coffee for a client meeting ($24), she takes cash from the drawer and drops the receipt in. When the office manager buys stamps ($15), same process. At the end of the month, the remaining cash plus all receipts should add up to exactly $200. The bookkeeper then records the expenses and replenishes the fund back to $200.

Why Petty Cash Matters for Your Books

Petty cash exists because not every purchase is worth the overhead of a formal payment process. But just because the amounts are small doesn't mean they can be sloppy. Untracked petty cash is a common source of bookkeeping discrepancies and, in worst cases, employee theft.

Every petty cash disbursement needs a receipt and a category. These small expenses — office supplies, postage, parking, minor repairs — add up. A business spending $150/month in untracked petty cash is losing $1,800/year in tax deductions.

The petty cash fund itself is an asset on your balance sheet. Replenishing it requires a journal entry that debits the appropriate expense accounts and credits cash. Keeping this clean ensures your books balance and your expense reports are accurate.

How Petty Cash Shows Up in QuickBooks

In QuickBooks Online, set up petty cash as a Cash on Hand account (Chart of Accounts → New → Cash on Hand). When you replenish the fund, record a transfer from your bank account to the petty cash account. Record individual disbursements as expenses from the petty cash account, categorized appropriately (office supplies, meals, postage, etc.). The petty cash balance appears on the Balance Sheet under Current Assets.

Common Mistakes

Not collecting receipts — no receipt means no documentation, no deduction, and no way to verify the spend

Letting the fund run unreconciled — if cash + receipts don't match the starting balance, money is unaccounted for

Setting the fund too high — keeping $1,000 in petty cash creates unnecessary risk; keep it proportional to actual small-expense needs

FAQ

Q: How much should I keep in petty cash? A: Enough to cover 2-4 weeks of minor expenses. For most small businesses, $100-$300 is plenty. If you're consistently running out, your fund may be too small — or expenses that should go through regular payment channels are being paid in cash.

Q: Is petty cash tax deductible? A: The fund itself isn't deductible — it's an asset. But the expenses paid from petty cash are deductible as long as they're legitimate business expenses with proper documentation (receipts).

Related Terms

Receipt

Reconciliation

Overhead

Source Document

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