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What is petty cash?

It’s handy to have a small amount of cash at hand for making immediate payments for miscellaneous small expenses. However, even for the spending of a few pounds a system needs to be put in place to ensure this expenditure is accounted for. In this article we explain what petty cash is and how to control the process.

What is petty cash?

Petty cash is a small amount of cash that is held on the business premises to use for small, business related, day-to-day spending. 

These items are often purchased in local shops and therefore will not need to go through the purchase order system as in most cases the cost of the items is less than the cost of processing purchase orders. In most cases the value of these times are £25 or less, however the maximum amount of a petty cash purchases allowed varies from business to business.  

How should I manage petty cash?

Special care must be taken to protect petty cash from theft or misuse. The following tips will help this process to run smoothly.   

  • Who is allowed to spend petty cash?

    Usually, with permission, most employees can use petty cash to pay for business expenses or pay for business items personally and reclaim the cash from petty cash. However, only authorised people – e.g. a Finance Manager will have access to the actual cash and will authorise all payments from petty cash.

  • What it can be spent on?

    It is usually spent on small items such as postage, refreshments and potentially small travel costs. A typical petty cash tin would have a balance at the start of a period of between £20 and £50. This would increase in line with the business size.

  • How to keep track of it?

    At least two people, of a relatively senior level, should control the petty cash tin. Whenever the tin is topped up (i.e. money is taken out of the bank and entered into the tin) this should be recorded in the cashbook and also as a ‘receipt’ to petty cash. All payments made should be authorised by one of the controllers. All receipts should be kept, and where VAT is being reclaimed on expenses, they should be valid VAT invoices. A petty cash voucher should be filled in for each item of expenditure so that the amount of expenditure detailed on the petty cash vouchers for a period should be equal to the cash taken out during a period.

  • How often should I reconcile it?

    It depends on the size of your business, the amount of cash in the tin and how frequently it is used. Ideally, it should be reconciled at least monthly but the more frequently it is reconciled the better control you will have over the process.

What is a petty cash book?

A petty cash book is a book where you enter all receipts and payments going in and out of petty cash. A petty cash book can be purchased from a stationery shop or website. 

Fields in your petty cash book should typically show:

  • purchases
  • date of purchase
  • amount of purchase.

A running balance showing how much money is in your petty cash should also be included and this will need to be recalculated each time money is taken out or added to the petty cash tin. The amount recorded in your petty cash book should also match the amount of money in your petty cash tin. 

Download: Petty cash log

You can record your daily petty cash receipts and payments in an Excel document. To get started click on the button below to download a copy of an Excel petty cash log. 

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What records should I keep?

You need to keep all of your receipts, petty cash vouchers (to fill in when payments are made from the tin) and a record of the ‘top ups’ i.e. the amount to top petty cash up at the end of a period.

How do I keep my petty cash safe?

It is important that you have tight controls over petty cash.

You should only give suitable people access to petty cash and ensure the box is locked and stored in a locked cabinet and the key is kept safely.

Vouchers should be filled in each time a payment is made and these should be entered into the petty cash book. The vouchers should be checked against receipts and you should have controls to check that the amount was spent for a business purpose e.g you haven’t reimbursed the receptionist for her own postage stamps she’s bought for personal use.

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