PETTY CASH ACCOUNTING: Setup, Controls, Replenishment, Journal Entries

Petty cash is a small, on-hand fund used for minor business expenditures—such as supplies, local travel, or employee reimbursements. Though small in amount, petty cash must be properly controlled, reconciled, and recorded in the company’s accounting system.

1. What Is Petty Cash?

Petty cash refers to physical cash kept on-site to handle low-value expenses that are impractical to pay by check or bank transfer.

It typically ranges between €50–€500, depending on business needs.

Typical uses include:

• Office supplies

• Parking or taxi fares

• Coffee, water, or snacks

• Postage or courier costs

• Small reimbursements to staff

2. Establishing a Petty Cash Fund

To create a petty cash fund, a fixed amount of cash is withdrawn from the company’s bank and handed to a responsible custodian (e.g., office manager).

Initial setup entry:

• debit Petty Cash

• credit Cash or Bank

Example

Establish a petty cash fund of €200:

• debit Petty Cash .............................................. 200

• credit Cash ............................................................. 200

The custodian is responsible for safeguarding the money and maintaining petty cash vouchers or receipts for every disbursement.

3. Using Petty Cash

Each time an expense is paid from petty cash, the custodian fills out a voucher with:

• Date

• Purpose

• Amount

• Signature of the person receiving cash

• Receipt attached (if available)

No journal entry is made at the time of payment.The entries occur only when the fund is replenished.

4. Replenishing Petty Cash

When the cash in the fund runs low, the custodian requests replenishment equal to the total of all vouchers/receipts. This ensures the fund returns to its original amount.

Journal entry at replenishment:

• debit Various Expenses (per vouchers)

• credit Cash or Bank

Example

Replenishing €180 spent on:

• Stationery: €60

• Taxi fare: €40

• Office coffee: €80

Entry:

• debit Office Supplies Expense ..................... 60

• debit Travel Expense ....................................... 40

• debit Staff Welfare or Refreshments ............. 80

• credit Cash/Bank ............................................. 180

5. Recording Overages and Shortages

If the amount of cash plus vouchers does not equal the fund balance, record the difference as:

• debit/credit Cash Over and Short (an income statement account)

Example

Fund should total €200.

Cash left: €15

Vouchers: €180

Missing €5 → shortfall.

• debit Office Supplies, Travel, etc. ................... 180

• debit Cash Over and Short ................................... 5

• credit Cash/Bank ................................................... 185

6. Controls and Safeguards

To prevent misuse or loss:

• Lock the cash in a secure box

• Assign one custodian with limited access

• Require receipts and signed vouchers

• Periodically audit and reconcile the fund

• Maintain a fixed float (always replenished to original amount)

Some businesses replace petty cash with corporate prepaid cards or employee expense claims.

7. Reporting on Financial Statements

• Petty Cash appears as part of cash and cash equivalents on the balance sheet.

• Related expenses (when replenished) are recorded in the income statement.

• The petty cash account balance remains fixed unless increased or reduced via formal changes.

8. Increasing or Closing the Fund

To increase the fund:

• debit Petty Cash

• credit Cash or Bank

To close the fund:

• debit Cash or Bank

• credit Petty Cash

Adjustments must be made formally and with updated approvals if company policy requires.

Key take-aways

• Petty cash is used for small, immediate business expenses.

• It is managed through vouchers and replenished with proper journal entries.

• Internal controls are essential to prevent misuse and track all expenditures.

• While small, errors or theft in petty cash can indicate broader control weaknesses.

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