What it means
Most organisations run petty cash on what accountants call the imprest system. A fixed float, say $500, is issued, spending is supported by receipts, and at intervals the tin is topped back up by exactly the amount spent, restoring it to the original figure.
That design is what makes the control work. Because the total of cash plus vouchers must always come back to the float, any shortfall is obvious immediately rather than being buried in a general expense account at year end.
In the accounts, the float itself is an asset sitting alongside bank balances, and it does not change when money is spent. Only when the tin is reimbursed do the individual expenses hit the profit and loss account, coded to postage, travel, staff refreshments and so on.
Petty cash carries a level of risk out of all proportion to its size, because it is the one place in a business where untraceable money sits in a drawer. Sound practice is a single named custodian, a locked tin, a numbered voucher for every payment, receipts attached, and a surprise count by someone independent at least quarterly.
The category has shrunk considerably as prepaid company cards and expense apps have taken over. Many finance teams now keep a much smaller float purely for genuine emergencies, because a card transaction creates its own audit trail automatically while cash does not.
There are limits worth writing into the policy. Petty cash should never be used to pay staff, to make advances, to settle supplier invoices, or for anything above a stated ceiling such as $50, since those uses defeat the purchase approval process entirely.
In practice
Real-world examples.
Example
A dental practice keeps a $300 float so the receptionist can buy replacement bulbs or pay a courier without waiting for head office approval. Every payment goes into a numbered voucher book that the practice manager reviews each Friday.
Example
A film production company issues a $2,000 float to each location manager for on set incidentals such as parking and last minute props. Any voucher above $100 needs the producer's initials, which keeps genuinely large costs inside the purchase order system.
Example
A charity's independent examiner carries out a surprise count and finds $140 in cash against a $400 float with only $210 of receipts. The $50 gap triggers a review that uncovers a volunteer taking small amounts and intending to repay them.
Think of it
“Petty cash is like the change jar you keep at home for small expenses. You don't write a check for a $5 purchase-you just grab cash from the jar.
Formula
Calculation
Cash in tin + total of supporting vouchers = agreed float
Reimbursement required = agreed float - cash counted
An office runs a $500 petty cash float. During the month the custodian pays out $62 for stationery, $48 for a taxi, $95 for refreshments for a client meeting and $30 for postage. Total vouchers = $62 + $48 + $95 + $30 = $235.
The cash remaining should therefore be $500 - $235 = $265, and the reimbursement cheque to restore the float would be $235.
Now assume the count finds only $262 in the tin. The reimbursement becomes $500 - $262 = $238, and the extra $3 is written off to a cash over and short account as a small expense. The entry recorded is $235 across the four expense categories plus $3 of cash shortage, totalling $238, and the tin returns to exactly $500.Case study
Seen in the real world.
The following is a fictional and illustrative case. Bramble Row Bakery, an invented chain of six shops, gave each shop manager a $400 petty cash tin and asked only that receipts be sent to head office monthly. There was no float reconciliation, no numbered vouchers and no independent count.
Head office noticed nothing wrong for two years, because the tins were simply topped up on request rather than reimbursed by the exact amount spent. When a new financial controller reconciled all six tins in a single week, the combined shortfall across the group came to $6,800, most of it not theft but missing receipts, personal purchases made with good intentions and never repaid, and cash used to pay casual staff off the books.
The fictional bakery moved five of the six shops onto prepaid cards with a $150 monthly limit, kept a single $200 emergency float per site, and introduced a quarterly surprise count. The direct saving was modest, but the payroll exposure it closed was not, and the annual audit became noticeably quicker.
Watch out
Common mistakes.
- Topping the tin up to a round number instead of reimbursing the exact amount spent, which destroys the imprest control and hides any shortfall.
- Recording petty cash spending as an expense when the money leaves the tin rather than when the float is reimbursed, which double counts the cost.
- Letting several people share access to the same tin, so that when it fails to balance nobody can be held responsible.
Questions
People also ask.
Who should hold the petty cash?
One named custodian who does not also authorise the reimbursement, since separating custody from approval is the whole basis of the control.
What happens if the tin is short by a few dollars?
Write the difference off to a cash over and short account and investigate, but treat a repeated or growing shortfall as a genuine control failure rather than rounding.
Is petty cash still worth keeping at all?
For most businesses a prepaid card is cleaner and creates its own record, so the sensible answer is a small emergency float rather than a working tin.
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