Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Entrepreneurs

  1. Cash
  2. Expense
  3. Revenues
  4. Credit
  5. Debit

Petty cash - What is petty cash?

Petty cash or petty cash funds is a small amount of money in the form of cash that is kept on hand used for paying small expenses when necessary.

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What is petty cash used for?

Petty cash funds are used in cases where a transaction is deemed too small or unreasonably to issue a check for.

Petty cash is normally used for any small miscellaneous expenses. Just as it suggests in the name, petty cash is kept in the form of cash because this allows payments to be made immediately.

For example:

  • Office supplies
  • Food or drinks bought for the office
  • Delivery/postage fee when sending a letter
  • Reimbursing employees for work-related expenses

Depending on your business size and expenses, your petty cash funds can be anywhere from £40 - £150 (more or less).

Petty cash and accounting

When money is taken from the petty cash funds account, it must be clearly stated what it was used for, how much, and when.

The petty cash funds account is usually evaluated at the end of each month, to check whether the amount of money left matches the amount of money taken out during the month. Whenever the petty cash funds are used to pay for something, it is required to provide a receipt for that transaction. Receipts are used to verify the balance in the petty cash funds.

Whenever money is coming in or out of the petty cash funds account, it needs to be recorded. In order to reconcile the petty cash fund to balance, the necessary debit or credit will be entered depending on if the account is over or under stated. The petty cash fund will then be replenished for the next month.