Petty Cash: Definition & Best Practices

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  Petty cash is a small fund of cash kept on hand for minor business expenses that don't warrant check or credit card payments.

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  Proper petty cash management requires a custodian, clear record-keeping, and regular replenishment with receipts.

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  Petty cash improves operational efficiency by enabling quick payment for small, unexpected purchases.

What is Petty Cash?

Petty cash is a small amount of money that businesses keep on hand to pay for minor expenses that may come up during daily operations. It is not intended for major purchases but is used for things like office supplies, small repairs, or even snacks for staff during meetings. This way, businesses can quickly handle these little costs without the need for writing checks or using credit cards.

How Does Petty Cash Work?

To manage petty cash, businesses usually follow these steps:

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  Set an Amount: Decide how much money will be kept in the petty cash fund, often ranging from $50 to $200.

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  Assign a Custodian: This person is responsible for keeping the cash safe and tracking all the expenses.

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  Keep Records: Every time cash is taken out, a record is made. This includes the amount, date, and purpose of the expense.

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  Replenish the Fund: Once the petty cash amount gets low, the custodian submits receipts and requests more cash to restore the fund to its original amount.

Why Is Petty Cash Important?

Petty cash is important because it:

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  Saves Time: Eliminates the need to write checks or process credit card payments for tiny expenses.

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  Improves Efficiency: Allows employees to make small necessary purchases quickly.

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  Maintains Records: With proper tracking, petty cash provides documentation for all minor expenses.

In summary, petty cash is a handy tool that helps businesses efficiently handle small, everyday expenses while keeping proper records to ensure everything is in order.