Petty Cash

Petty cash is a small fund of physical currency a business keeps on hand for minor expenditures that do not justify a check, a card charge or a purchase order. Under the imprest method the fund carries a fixed authorized amount. Every payment out of the tin is replaced by a signed slip and its receipt, so the cash on hand plus the slips always add back to that amount, and replenishing the fund restores the cash to it. Under that method the replenishment, not the payment out of the tin, is the moment the spending is recorded as expense.

How an Imprest Fund Works

The mechanic has a formal name. Federal acquisition rules define an imprest fund as a cash fund of a fixed amount established by an advance of funds, without charge to an appropriation, from an agency finance or disbursing officer to a duly appointed cashier, for disbursement as needed from time to time in making payment in cash for relatively small amounts (FAR 13.001). Three things there carry the control: the amount is fixed, the money is advanced rather than drawn as needed, and one named person holds it.

The IRS describes petty cash from the recordkeeping side, and its description sets no fixed amount at all. A petty cash fund lets a business make small payments without writing checks for small amounts, and each time a payment is made the business should make out a petty cash slip and attach it to the receipt as proof of payment (IRS Publication 583, Rev. December 2024). The slip and the receipt are the source documents for that payment, so a slip nobody wrote is spending nobody can prove.

The fixed amount turns up in that publication’s sample records, which it presents as how one business keeps its records rather than as a recommendation. A sole proprietor sets a fixed amount of $50 in his petty cash fund, and the total of the unspent petty cash and the amounts on the petty cash slips should equal that fixed amount (IRS Publication 583, Rev. December 2024).

One person is the custodian, holds the key, signs the slips out and answers for a difference at the count. Split the tin across two people and a shortage has nobody to explain it, so the count stops being a control and becomes a formality. The fund itself sits in current assets, because it is currency the business can spend today. Counting it is the near relation of a bank reconciliation, except you match the tin and the slips against an imprest amount the firm set itself, not a ledger against a third party’s statement.

The Replenishment Entry

Say a firm establishes a petty cash fund at a fixed imprest amount, and over a month the custodian pays for postage, a courier and parking out of the tin.

Establishing the fund                          Debit      Credit
Petty cash                                       200
    Cash in bank                                             200

At the count
Coins and bills in the tin                       107
Slips and receipts held                           93
Imprest amount                                   200

Replenishing the fund                          Debit      Credit
Postage expense                                   46
Courier expense                                   28
Parking expense                                   19
    Cash in bank                                              93

Notice which account does not move. Petty cash is debited once, when the fund is created, and then sits at the imprest amount until the firm changes it. The expense lands at replenishment, not when the cash left the tin, which is why the fund is replenished at the end of an accounting period as well as when it runs low, and why a fund left unreplenished for months quietly holds real spending out of the results. The debits in that journal entry are whatever accounts the slips code to, and small amounts with no account of their own go to sundries.

When the count comes up short, the gap is not spread across the expense coding. It goes to a cash over and short account, and the check is written for whatever restores the imprest amount rather than for the slip total.

What Petty Cash Is Confused With

A change fund is not petty cash. Money held in a register to make change for customers is there to complete sales, not to pay expenses. A fund that holds both is not broken by that alone, but it reconciles only if the total is fixed and the change and the petty cash are counted as separate parts.

A petty cash fund run on the imprest method is also called an imprest fund, and the slips are also called petty cash vouchers, different words for the same things rather than different instruments.

The last confusion is a dollar limit. A figure quoted as the petty cash ceiling is a policy number, and whose policy it is decides whether it reaches anyone else. Publication 583 describes the fund and the slips without setting any cap on the fund or on a single payment (IRS Publication 583, Rev. December 2024). Federal agencies do work to a written cap, since an imprest fund may be used for a purchase only when the transaction does not exceed $500 or such other limits as have been approved by the agency head (FAR 13.305-3(a)), but that is a federal acquisition rule and it does not reach a private firm’s tin.

Accountably places trained offshore accountants inside US CPA and EA firms, and a firm can put a real block of its own reconciliation and coding work through a trial task before anything client facing depends on it.