Petty Cash

Reviewed by Vineeth | Updated on Jul 30, 2021



Petty cash is a nominal sum which is preserved in hand to cover minor expenses, such as reimbursements or other office-related expenses. Like other funds, petty cash will also be subject to regular reconciliations, with every transaction being recorded in the official statements and other records.

Almost every department of a large corporation maintains petty cash in a drawer, small box, or other similar containers.

Breaking Down Petty Cash

The presence of petty cash provides the much-needed flexibility for doing small transactions for which handing out a demand draft or a bank cheque seems illogical. The nominal amount stored in the form of cash which an organisation deems petty will vary across companies.

However, most organisations maintain a petty cash reserve in the range of Rs 5,000 to Rs 20,000. The following are some of the transactions for which petty cash is made use of:

  • Office stationeries
  • Office supplies
  • Water dispensary
  • Team lunch
  • Refreshments for the clients who visit the office for business
  • Reimbursing employees who have spent a nominal sum on behalf of the company

Each department would have appointed an executive to look after the transactions of the petty cash reserve. The duty of custody of petty cash involves enforcing the rules set to make use of petty cash, disbursing, and reimbursing petty cash on a regular basis.

Journal Entries

Even though petty cash is a nominal sum, the transactions made using petty cash is still recorded in the financial statements of the organisation. Accounting journal entries would not be made when there is a purchase being made using the petty cash.

It is recorded when the individual in charge to oversee this fund is in need of more money in exchange for the invoice, bills, or receipts. The journal entry is made only when the custodian of petty cash is handed with excess cash or when a large amount is being debited or credited to the petty cash.

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