Petty cash is a small, controlled fund used for minor business purchases when another payment method is impractical. It is not informal money. A sound fund has a fixed authorized balance, a custodian, receipts, approved uses, surprise counts, and prompt investigation of differences.
How an imprest fund works
Under the imprest method, the authorized fund remains fixed. Cash plus approved vouchers should equal that amount. When the fund is replenished, expenses are recorded and cash in the bank is reduced; the Petty Cash account normally changes only when the authorized fund increases or decreases.
Petty cash journal entries
Assume a company establishes a $300 fund:
Debit Petty Cash $300; credit Cash $300.
Later, vouchers show $110 office supplies, $45 local delivery, and $25 other approved expense. Remaining cash is $120. To replenish $180:
Debit Office Supplies Expense $110; debit Delivery Expense $45; debit Other Expense $25; credit Cash $180.
The Petty Cash ledger balance stays $300.
Record cash over or short
If only $116 remains, the fund is $4 short. Replenishment requires $184: debit documented expenses for $180, debit Cash Over and Short for $4, and credit Cash for $184. If cash exceeds the expected balance, the difference is generally credited to Cash Over and Short. Repeated differences require investigation, not routine write-offs.
Essential controls
- Set a low fund limit and transaction ceiling.
- Name one custodian and restrict physical access.
- Require dated, approved vouchers and original receipts.
- Prohibit personal loans, check cashing, split transactions, and undocumented IOUs.
- Do not let the custodian approve their own reimbursement or perform the final accounting review.
- Perform documented surprise counts by an independent person.
- Secure the cash and replenish by accountable payment.
Petty cash count template
| Count component | Amount |
|---|---|
| Currency and coins counted | ___ |
| Approved vouchers | ___ |
| Expected total | Authorized fund |
| Over or short | Actual minus expected |
Both counter and custodian should date and sign the count without altering source evidence.
When to replace petty cash
Controlled purchasing cards, employee expense tools, and electronic reimbursements create better approval and audit data for many businesses. Retain petty cash only when the operational benefit exceeds theft, safety, and administration risk. Integrate any remaining fund with the wider cash management system and the debit-credit logic in the T-account guide.
Frequently asked questions
Is petty cash an expense?
No. Establishing the fund transfers cash to another cash account. Expenses are recognized when vouchers are replenished or otherwise recorded.
What if a receipt is lost?
Follow a documented exception process with explanation and approval. Repeated missing receipts should trigger restriction or investigation.
How often should the fund be counted?
Count at replenishment and perform periodic unannounced counts. Frequency should reflect size, transaction volume, and prior exceptions.
Sources reviewed
Last reviewed: August 15, 2026. Examples are simplified general education; apply your accounting framework and internal policy.