Petty cash is a small amount of cash that a company keeps on hand for small outlays, usually because using cash is easier than writing a check or using a credit card. It is used for minor or incidental expenses, such as office supplies or reimbursements, for which writing a check or using a credit card is impractical or inconvenient. Petty cash is typically kept in a locked box or other secure location. The amount of petty cash varies by company and may be in the range of $30 to $300. Petty cash can be used for various purposes, including:
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General Petty Cash: A designated amount of money set aside for small, miscellaneous expenses such as office supplies, postage, and minor employee reimbursements.
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Imprest Petty Cash: A fixed amount of money that is periodically replenished. A common example is a fixed amount of money that is set aside to reimburse employees for expenses related to business travel.
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Emergency Petty Cash: This type of petty cash is set aside for emergency purposes. It is typically used to cover urgent expenses that arise unexpectedly, such as a broken window or a printer malfunction.
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Discretionary Petty Cash: An amount of money that is available for use at the discretion of a company.
Petty cash is typically accounted for using the imprest system, where an initial fund is created by issuing a check for the desired amount. The bookkeeping entry for this initial fund would be to debit Petty Cash and credit bank account. This check would then be cashed to acquire the actual cash needed for payments. Oversight of petty cash is important because of the potential for abuse. Examples of petty cash controls include a limit on disbursements and monthly audits by someone other than the custodian.
