Financial Glossary
Petty cash
Petty cash is a small, fixed-dollar cash fund maintained on business premises to pay for minor operational expenses that are inconvenient or impractical to process through normal accounts payable -- items such as postage, office supplies, or small delivery tips. The fund is established at a set amount (the imprest balance), disbursements are made against receipts, and the fund is replenished periodically by issuing a check equal to the total of receipts accumulated since the last replenishment. At any point, cash on hand plus receipts should equal the imprest balance; a discrepancy indicates a recording error or misuse.
Problem & Application
A campground office maintains a $250 imprest petty cash fund. Over two weeks, staff spend $18 on printer ink, $34 on guest amenity supplies, and $12 on postage -- total $64 in receipts. To replenish, the bookkeeper writes a check for $64 coded to the appropriate expense accounts, restoring the fund to $250. At month-end, if cash on hand is $170 but only $60 in receipts are found, the $20 discrepancy must be investigated and, if unresolved, recorded as a miscellaneous loss. Common petty cash controls include a designated custodian, locked storage, surprise counts by a second employee, and a spending limit per transaction (commonly $25 to $50) above which a purchase order or company card must be used instead.
In Short
Petty cash is a useful tool for handling minor expenses, but businesses need strong internal controls to ensure it is managed effectively and transparently.