Petty cash is a small amount of cash a business keeps on hand to pay for small, everyday costs: stamps, parking, a pint of milk for the office, a bag of screws. It is usually kept in a locked tin or box, with a fixed starting amount called a float.
Small amounts, but real business costs. They belong in your books like every other expense.
First, it helps to be clear what the fund is for. After that, a single example fund runs through the rest of this guide, so every step has real numbers attached.
What can you use petty cash for?
Petty cash is for costs that are too small or too sudden to pay by card or bank transfer. Typical examples:
- postage and stamps;
- parking and short taxi fares;
- small office or workshop supplies: printer paper, cleaning products, fixings;
- tea, coffee and milk for the office;
- a small repair or a delivery tip.
It is not for large purchases, wages or anything you would normally pay against an invoice. Those go through your bank account, where there is a record of them anyway.
A cash-heavy business, such as a café or a market stall, often uses petty cash every day. An electrician or a photographer might only dip into it a few times a month. The method is the same.
How to set up a petty cash fund
Setting up takes 4 decisions, and you make them once.
1. Decide the float
The float is the fixed amount the fund starts with, and goes back to every time you top it up. Pick an amount that covers a typical week or month of small costs. In our example it is £100.
2. Set a limit per purchase
Decide the largest amount anyone can take from petty cash for a single purchase, for example £25. Anything bigger is paid the normal way.
3. Choose who holds it
If you work alone, that is you. If you have staff, give a single person the job of paying out, collecting receipts and keeping the book. A single holder means someone who can answer for the balance.
4. Keep it locked, and ask for a receipt every time
A lockable cash box in a drawer is enough for most small businesses. Every payment out needs a receipt. If there is no receipt, write a petty cash voucher: a slip with the date, the amount, what it was for and who took the money.
That’s the fund set up: a float, a limit, a holder and a receipt for every penny.
How to keep a petty cash book
A petty cash book (or petty cash log) is a list of every payment in and out of the fund, with a running balance. Here is our example fund for a month:
| Date | Details | Receipt / voucher | Paid in (£) | Paid out (£) | Balance (£) |
|---|---|---|---|---|---|
| 1 Sep | Float from bank account | 100.00 | 100.00 | ||
| 3 Sep | Postage | R1 | 8.40 | 91.60 | |
| 8 Sep | Parking at client site | R2 | 6.00 | 85.60 | |
| 12 Sep | Printer paper | R3 | 21.50 | 64.10 | |
| 19 Sep | Milk and coffee | V1 | 12.75 | 51.35 | |
| 26 Sep | Cleaning products | R4 | 23.75 | 27.60 |
5 payments out, £72.40 in total, and £27.60 should be left in the box.
Many businesses also split the “paid out” column into categories, such as postage, travel and supplies, so each total can go straight into the right expense in the books. If you would like a ready-made layout, our free petty cash template gives you one.
How to reconcile petty cash in 4 steps
Reconciling petty cash means checking that the cash in the box plus the receipts add up to the float. Do it before every top-up, and at least once a month.
1. Count the cash. In our example, the box holds £27.60.
2. Add up the receipts and vouchers. R1 to R4 plus V1 come to £72.40.
3. Check the sum against the float. £27.60 + £72.40 = £100.00. The fund balances.
4. Top up by the amount spent. Take £72.40 from the bank account and put it in the box. The fund is back to £100, and the £72.40 goes into the books as the month’s petty cash expenses.
If the numbers do not match, look for the gap before you top up. The usual causes are a lost receipt, a payment someone forgot to note, or change that went back into a wallet instead of the box. Check the book line by line against the receipts, then ask whoever used the fund. If you still cannot explain a small difference, record it as a difference in the book so the next count starts from the truth.
Petty cash reconciliation is not the same as bank reconciliation. Bank reconciliation compares your records with your bank statement. Petty cash has no statement, so the count of the box is your statement.
Count, add, compare, top up. That is the whole routine.
Petty cash has to reach your books as well
The petty cash book tracks the box. Unless the same payments reach your bookkeeping, the costs never show up in your reports.
In bookkeeping, petty cash is simply another place where the business keeps money, like a bank account. Moving £100 from the bank into the box does not change what the business owns: it is the same money in a different place. When you spend it, each receipt becomes an expense, just like a card payment would.
In EasyBooks you can keep a cash account next to your bank and card accounts. A top-up is recorded as money moving from the bank account to the cash account, and each petty cash receipt is recorded as an expense paid from cash. Because EasyBooks records both sides of every transaction, the cash account’s balance tells you what should be in the box, and your petty cash spending appears in your profit and loss report with everything else.
If you want each receipt stored with its transaction, the Silver and Gold plans let you attach it. And because EasyBooks runs on iPhone as well as Mac, you can record a cash payment when you make it, rather than from a pocket of receipts at the end of the month.
The simplest way to see it is to try it: start your 14-day free trialstart your 14-day free trial, add a cash account with your float, and record this week’s receipts.
Is petty cash an asset? And 4 more questions
Is petty cash an asset?
Yes, petty cash is an asset, because it is money the business owns. On a balance sheet it sits with your other cash and bank balances. There is more on how assets appear there in our guide to creating a balance sheet.
What is a petty cash voucher?
A petty cash voucher is a slip you fill in when money leaves the fund without a receipt. It shows the date, the amount, what the money was for and who took it. It does the job of the missing receipt in your petty cash book.
Can petty cash be negative?
No, you cannot spend cash the box does not hold, so a negative balance in the book means a record is wrong. Usually a payment was noted twice, or someone paid from their own pocket and it was recorded as petty cash. Find the entry and correct it.
How do I close a petty cash fund?
Count the cash, reconcile it one last time against the receipts, and pay the remaining cash back into the bank account. Record that final movement in your books, and the cash account goes to zero.
Do I need petty cash at all?
Not every business does. If you pay for almost everything by card, you may never need a cash box. If you do handle small cash costs, a petty cash fund keeps them in one place with a receipt for each, instead of mixed with your own money.
Small cash stays small when every payment has a line
That’s the whole of it: a float in a box, a line in the book for every payment, and a count before every top-up.
