How to Manage Petty Cash in Your Small Business

What Is Petty Cash?

Petty cash is a small fund of physical cash kept in the business for minor everyday expenses that are impractical to pay by card or bank transfer — things like a taxi to a client meeting, office supplies from a corner shop, small tools, or refreshments for a team meeting.

It's not meant for large purchases or regular expenses. Those should go through normal business accounts.

Why Petty Cash Gets Messy

The problem with petty cash is that it operates outside the normal flow of bank transactions. There's no bank statement to reconcile against. Cash can be taken out, spent, and forgotten without a trace.

Without a system, petty cash becomes a black hole: money goes in, some comes out, nobody's sure how much is left or what it was spent on, and at year-end there's a discrepancy with no explanation.

The fix is a simple system applied consistently.

Setting Up a Petty Cash System

Step 1: Designate an imprest amount

The "imprest" system is the standard approach. You set a fixed float amount — say $200. The petty cash fund starts at $200.

When cash is taken for an expense, a receipt or voucher is left in its place. The total of cash + receipts/vouchers always equals $200 (the imprest amount).

When the cash gets low, you "top up" to $200 by drawing from the business bank account. The amount drawn equals the total receipts.

Step 2: Use a petty cash log

For every transaction, record:

Date

Amount spent

Description of what it was for

Category (travel, office supplies, refreshments, etc.)

Receipt reference (or note if no receipt available)

Running balance

A physical notebook or simple spreadsheet both work.

Step 3: Require receipts for every transaction

Every petty cash spend should have a receipt. Where a receipt isn't possible (e.g. parking meter), a signed petty cash voucher noting the date, amount, purpose, and person who spent it.

No receipt and no voucher = the expense cannot be claimed for tax purposes.

Step 4: Reconcile regularly

At least monthly (more often for high-volume businesses), count the physical cash and compare to the log:

Physical cash + total of receipts and vouchers = imprest amount

If the numbers don't add up, find the discrepancy before it grows. Small errors now are much easier to trace than a large unexplained gap at year-end.

Step 5: Top up when needed

When the cash balance drops to a defined threshold (say, under $50), draw the shortfall from the business bank account and code it as petty cash replenishment. Record all the receipts you're "reimbursing" in your accounting system under the appropriate expense categories.

This is the moment petty cash transactions enter your formal accounts — so every expense gets properly recorded even though it was initially paid in cash.

What Petty Cash Should NOT Be Used For

Large or regular purchases (these should go through normal accounts)

Loans to employees or the owner

Personal expenses

Anything over a set limit (define this — $50 or $100 is common)

Petty cash is for genuinely petty, occasional, cash-only expenses. If something is happening regularly, it should have a proper accounts process.

Petty Cash and Tax

Petty cash expenses are legitimate business expenses — deductible from your taxable income just like any other business cost. But only if they're documented. The receipts and voucher log are your evidence.

If you're audited, "I spent about $800 on petty cash things" without receipts will not be accepted as a deductible expense.

Recording Petty Cash in Quotation Expert

In Quotation Expert, you can record petty cash expenses in the expense module just as you would card or bank expenses. Log each expense with its category and receipt reference when you do the monthly reconciliation and top-up. This keeps your full expense picture — card, bank, and cash — in one place for your P&L report.