Petty cash: set limits and records before small purchases become untraceable
Run petty cash as a fixed, documented fund with one custodian, approved uses, numbered vouchers, receipts, surprise counts, and signed replenishment.
Bottom line
Petty cash should cover narrow, low-value exceptions. Use a fixed fund, one custodian, numbered vouchers, receipts, and independent counts. Repeated purchases from the same supplier usually belong in a card, purchase order, or AP workflow with better approval and reporting.
Is it right for you?
- Set the approved fund amount and per-purchase limit
- Name one custodian and a documented backup
- Require a numbered voucher and receipt for each use
- Reconcile cash plus vouchers to the authorized fund before replenishment
- Move repeated supplier spend into a controlled card or AP process
Treat the fund as cash under custody
The authorized fund amount should equal the cash on hand plus approved, unreimbursed vouchers. If it does not, investigate the difference before adding more cash.
Limit physical access. The custodian should not approve their own unexplained difference, and a backup should follow the same handoff record rather than sharing an unlogged key.
Use a voucher that answers the close questions
| Voucher field | Purpose |
|---|---|
| Sequential number and date | Shows whether vouchers are missing |
| Employee and business purpose | Identifies who used the cash and why |
| Amount and account coding | Supports the replenishment entry |
| Receipt or exception approval | Documents the purchase evidence |
| Custodian and reviewer sign-off | Separates custody from review |
Replenish from evidence, not a round number
Count the remaining cash, total the vouchers, and compare the sum with the approved fund. Replenish only the supported voucher amount. Record and approve any shortage or overage separately.
The IRS says records help track deductible expenses and support financial statements and tax returns [IRS, 2026]. A missing receipt procedure should require a specific explanation, not become the normal path.
Frequently asked questions
What should petty cash pay for? Follow the company's written limits. Reserve the fund for inexpensive exceptions that cannot go through ordinary purchasing.
Who should count it? The person holding the cash reconciles the balance. Someone independent then checks it at scheduled intervals or without advance notice.
What if a receipt is missing? Require a signed exception with the amount, business purpose, date, and approval; repeated exceptions need corrective action.
When should a purchase move out of petty cash? Move recurring, supplier-based, higher-value, or easily card-paid spending into the controlled expense or AP process.
What is another word for petty cash? Imprest fund, or the imprest system, is the standard accounting term for the same concept: a fixed amount of cash replenished only to the level of documented spending, which is exactly the process the voucher and replenishment sections above describe.
What is petty cash journal entry? Setting up the fund: debit petty cash, credit the bank account, for the initial amount. Replenishing it: debit the expense accounts the vouchers were coded to, credit the bank account, for the total actually backed by receipts. The fund's own cash balance does not change on replenishment; only the bank account and the expense accounts it funded do.