Definition
Petty cash is a small fund of cash kept on the premises for minor expenses such as postage, taxis or office supplies. Under the imprest system the fund has a fixed amount; the custodian keeps receipts, and the fund is replenished by exactly the amount spent, so cash plus receipts always equals the fixed balance.
How it works
Setting up the fund moves cash from the bank to a petty cash account. Individual purchases are not posted one by one: when the fund runs low, the custodian submits the receipts and a single replenishment entry debits each expense and credits bank. The petty cash account balance only changes if the fund size changes.
Controls are simple but essential: one named custodian, a lockable box, numbered vouchers, a spending limit per item, surprise counts and a reconciliation at every replenishment. Each replenishment is a regular journal entry, so it stays visible in the audit trail.
Example: setting up and replenishing a 500 fund
A firm sets up a petty cash fund of 500. By month end the box holds 120 in cash and receipts for postage 90, taxis 160 and supplies 130, a total of 380. The replenishment entry debits the three expenses and credits bank 380, bringing the box back to 500.
| Account | Debit | Credit |
|---|---|---|
| Postage expense | 90 | |
| Travel expense | 160 | |
| Office supplies expense | 130 | |
| Bank | 380 |