Petty Cash: How to Manage It Properly
Petty cash is the small pot of money that pays for milk, postage, a last-minute parking meter or a quick hardware run. It looks too small to worry about, which is exactly why it so often goes missing, gets mixed up with personal cash or vanishes from the books. A few simple rules keep it tidy, honest and easy to account for.
Key takeaways
- Petty cash is a small, fixed float for minor business purchases that are easier to pay in cash.
- The imprest system keeps it simple: cash plus receipts should always equal the set float amount.
- Every payment needs a receipt or a voucher, and one named person should look after the box.
- Reconcile regularly, top it back up to the float and record the spending in your books by category.
- Keep petty cash separate from till takings and personal money at all times.
Many businesses barely use cash anymore, so you might wonder why petty cash still matters. Yet plenty of small shops, cafes, studios, workshops and offices keep a little cash on hand for situations where a card is awkward: tipping a delivery driver, buying stamps, reimbursing a team member for a bag of ice or paying a window cleaner who only takes cash.
The amounts are small, but the risks are real. Without a system, petty cash becomes a black hole in your bookkeeping, a source of awkward conversations with staff and, occasionally, a temptation. February is a good time to reset it: the busy holiday spending is behind you, and you can start the rest of the year with a clean box and clear rules.
What petty cash is for (and what it is not for)
Petty cash covers small, occasional business expenses that are impractical to pay by card or invoice. It is not a substitute for a proper expense process, and it is not a float for giving customers change.
| Usually fine from petty cash | Better paid another way |
|---|---|
| Postage and small courier costs | Regular supplier bills (pay by invoice) |
| Office or kitchen basics like milk, coffee or cleaning supplies | Wages, contractor fees or anything payroll-related |
| Parking, tolls or a short taxi ride for a business errand | Large purchases or equipment |
| Small emergency repairs or hardware store items | Personal loans or cash advances to staff |
| Small tips for deliveries where appropriate | Customer refunds (use the till or your payment system) |
Paying wages or contractors in cash from petty cash is a particularly bad idea. It makes payroll records, tax reporting and any later questions far harder. Keep people payments in your proper payroll and accounts payable process.
The imprest system: the simple method that works
The most common way to run petty cash is called the imprest system. The name sounds old-fashioned, but the idea is beautifully simple.
You decide on a fixed float, say a made-up $200. You withdraw that amount from the business bank account and put it in a lockable box. As money is spent, receipts replace the cash. At any moment, the cash left in the box plus the receipts should add up to exactly $200. When cash runs low, you total the receipts, record the spending and withdraw exactly that amount to bring the box back to $200.
Choosing your float amount
There is no single right amount. Look at the last two or three months of small cash spending and choose a float that covers roughly a few weeks of typical use. Too small and you are topping up constantly; too large and you are keeping more cash on site than you need to protect. Many small businesses start with a modest amount and adjust after a couple of months.
Pro tip
Keep a mix of small notes and coins in the float. If the box only holds large notes, people end up "borrowing" change from the till or their own wallet, and that is how the two pots start to blur together.
Setting up petty cash step by step
- Write a one-page policy. State the float amount, what petty cash can and cannot be used for, the maximum single payment and who can approve exceptions.
- Name a custodian. Choose one person to hold the key and handle payments. Name a backup for holidays and sick days. Shared responsibility usually means no responsibility.
- Get a lockable box and a safe spot. A cash box kept in a locked drawer or small safe is enough for most small businesses. Keep it out of sight of customers.
- Withdraw the float from the business account. Record it in your books as a transfer from your bank account to a petty cash account (an asset). It is not an expense yet.
- Prepare vouchers and a log. Print a stack of simple vouchers (template below) and keep a running log sheet or spreadsheet.
- Brief the team. Show everyone who might need cash how to request it, what proof is needed and how quickly they must return receipts and change.
- Set a reconciliation rhythm. Decide when the box is counted, for example weekly, and when it is topped up, for example when cash falls below a set level or at month end.
The petty cash voucher and log template
Every payment from the box should have a voucher, whether or not there is a store receipt. Staple or clip the receipt to the voucher. If a receipt is lost, the voucher at least records who spent what, when and why, signed by both the person and the custodian.
Here is a combined log you can copy into a spreadsheet. The rows use clearly made-up example amounts.
| Voucher no. | Date | Paid to / purchase | Purpose | Account category | Amount | Receipt attached? | Requested by | Approved by |
|---|---|---|---|---|---|---|---|---|
| PC-001 | 3 Feb | Post office, parcel postage | Customer replacement order | Postage and shipping | $12.40 | Yes | Lee | Priya |
| PC-002 | 5 Feb | Corner shop, milk and coffee | Staff kitchen | Office supplies | $8.75 | Yes | Sam | Priya |
| PC-003 | 9 Feb | Hardware store, replacement bulb | Shop display lighting | Repairs and maintenance | $15.20 | No, voucher only | Priya | Owner |
Notice that the custodian's own spending (PC-003) is approved by someone else. That small habit protects the custodian as much as the business.
Reconciling and topping up
Reconciling petty cash means counting what is in the box and checking it against the receipts. It takes about ten minutes when done regularly and a frustrating hour when left for months.
- Count the cash. Count notes and coins, ideally with a second person present.
- Total the vouchers. Add up all vouchers since the last top-up.
- Check the imprest rule. Cash plus vouchers should equal the float.
- Investigate any difference. Look for a missing voucher, a math error or change not returned. Small differences happen; repeated ones need attention.
- Record the expenses. Post the total for each category in your books, for example postage, office supplies and repairs, reducing the petty cash account.
- Top up. Withdraw exactly the amount spent from the business bank account and return the box to its full float.
- File the paperwork. Keep the vouchers and receipts together, labeled by period, or scan them into your records.
Hypothetical example
Priya manages a small florist with a made-up £150 petty cash float. At the end of the month she counts £63.10 in cash and finds vouchers totaling £84.40. Together that makes £147.50, so £2.50 is unaccounted for. She checks the log and finds a parking payment that was paid but never written up. The team member confirms it, signs a late voucher, and the box balances. Priya posts the expenses by category, withdraws £86.90 to bring the float back to £150, and adds a line to the policy: "Write the voucher before you leave the shop."
Common mistake
Topping up petty cash from the till. It feels convenient, but it mixes sales takings with expenses, makes your sales figures unreliable and can hide shortages in both pots. Always top up from the business bank account so there is a clear record.
Controls that keep petty cash honest
Most petty cash problems are not dramatic theft. They are small leaks: forgotten receipts, "I'll pay it back tomorrow" loans, change that never makes it back into the box. These simple controls close the gaps without making anyone feel accused.
- Set a per-payment limit. Anything above it goes through your normal expense or purchasing process.
- No IOUs. The box is not a lending service, including for the owner.
- Separate duties where you can. The person who holds the cash should not be the only person who reconciles it. Even in a two-person business, swap roles for the monthly count.
- Surprise counts. An occasional unscheduled count is normal good practice and keeps the log up to date.
- Watch for patterns. Frequent missing receipts, round-number amounts or repeated small shortfalls deserve a friendly conversation.
- Consider cashless alternatives. For many teams, a prepaid or company card with spending limits replaces most petty cash use. Expense tools such as Expensify, Dext, Ramp or Pleo can capture receipts by phone; check current features, pricing and privacy policies before choosing one.
Your tax authority may expect you to keep receipts and records of business expenses for a number of years. Requirements differ between the US, UK and EU countries, so check the official guidance for your location. This article is general information, not accounting or tax advice, and a qualified accountant can confirm how petty cash should be recorded for your business.
Your petty cash action plan
- Decide whether you still need petty cash, or only for a few specific uses
- Choose a float amount based on recent small cash spending
- Write a one-page policy with limits and allowed uses
- Name a custodian and a backup
- Set up a lockable box, vouchers and a log
- Record the float as a petty cash asset account in your books
- Schedule a regular count and a top-up routine
- Brief everyone who might use the box
Frequently asked questions
How much petty cash should a small business keep?
Enough to cover a few weeks of typical small cash purchases, and no more. Review your last few months of cash spending, pick a sensible float and adjust it after a couple of reconciliations. Also check whether your business insurance places any limits on cash kept on the premises.
What if someone loses a receipt?
Have them fill in a voucher with the date, amount, place and purpose, and sign it, with the custodian or owner countersigning. Occasional lost receipts are normal. If it happens often, tighten the rule or move that type of spending to a card.
Is petty cash an expense or an asset?
The cash in the box is an asset, usually recorded in a petty cash account. It becomes an expense only when it is spent, and those expenses are recorded under the right categories when you reconcile and top up.
Can a sole trader or freelancer skip petty cash?
Often, yes. If you are the only person spending and you rarely use cash, paying from a business card or reimbursing yourself through your normal expense process is usually simpler. Petty cash makes most sense when several people need small amounts of cash on site.
Related reading
The bottom line
Petty cash works best when it is small, boring and well documented. Set a fixed float, name one custodian, insist on a voucher for every payment, reconcile on a schedule and top up only from the business bank account.
Do that, and the little cash box stops being a mystery in your books. It becomes what it was always meant to be: a convenient, trustworthy way to handle the small stuff so you can focus on the big stuff.
