Petty Cash

Petty cash is used for small, incidental expenses where it is not convenient to use a check; like for a taxicab. Before a petty cash account is set up, the organization determines the maximum amount to be held in petty cash. This dictates how much cash should be replenished when receipts pile up and cash is low. Typically, a check is written for cash at the bank and the cash is housed in a lock box. When cash is needed, a slip is put in the lock box saying who took the cash. The slip is replaced with the receipt for the expense and any change being returned to the lock box. Record all expenses paid using petty cash into your general ledger on a regular basis.

The balance in your petty cash box should tie to the balance shown on the general ledger at all times. This account might seem small, but to the auditors it is a prime example of how your organization manages internal controls and cash, so treat it as you would your other accounts.

To account for petty cash transactions, except for the addition of cash to the account, you will need to record journal entries on your general ledger or in your accounting package. Below are sample journal entries.

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