The businesses and offices makes minimal payments every day. Such costs can be tea, courier charges, minor repair work or travel fare. Bank transfers or cheques are a waste of time and effort for such little costs. And that’s where petty cash comes in. Petty cash is a little bit of cash set aside to help facilitate these little everyday expenses, quickly and easily. Petty cash is a small and fixed fund created to pay for small-scale work or business expenses without formal bank transaction procedures. It cuts down on paperwork, saves time, and makes urgent payments easy to deal with. It is administered by an individual known as a petty cashier, who records everything in a petty cash book. When learning the fundamentals of accounting, students read many terms such as petty cash book format, petty cash meaning or petty cash voucher. This article explains all the related concepts such as what is petty cash, petty cash book meaning and its uses, petty cash book definition, examples, pros and cons of petty cash etc. We’ll also explore how to post the vouchers, format the book and reconcile it.
What is Petty Cash?
Petty cash is a small amount of cash on hand used for minor business transactions. It is not necessary for formal approval for these costs or large transactions. You also have it available to prevent login delays for minor purchases.
Imagine the office cleaner needs ₹100 to purchase cleaning supplies. It is a lot easier to give this amount out of petty cash compared to transferring this to a bank account or giving a cheque. Petty cash meaning is quite simple, it is cash to be used for small, day to day and urgent expenses. This avoids wasting time or taking extra steps, thus helping ensure that projects stay on track.
Key features of petty cash:
- The cash request generally runs from ₹500 to ₹5,000.
- A petty cashier handles it.
- Every expense is recorded.
- It is reserved for small, legitimate needs.
Understanding Petty Cash
With this overview in mind, let’s look at the concept of petty cash in an actual business or School environment.
How is petty cash issued and controlled?
A company establishes a maximum amount for petty cash. He is a petty cashier that receives this money. He or she locks it away in a drawer or cash box. When someone in the office requires a small sum, for instance, to pay a rickshaw fare or to get photocopies, then they ask the petty cashier.
The petty cashier hands over the money, fills out a petty cash voucher and requests the employee to submit a receipt or proof in return. This is then entered in petty cash book by cashier.
Each of these moves is within a tight internal control process. It also aids in tracking every rupee and preventing misuse or fraud.
Format and Purpose of Petty Cash Book
The petty cash book is one of the most essential parts of petty cash handling. So, what is a petty cash book? A special book in which all petty cash transactions are entered.
Petty Cash Book Definition:
It is a type of cash book that maintains the details of all small cash payments of a business paid out of the petty cash fund. This book is to keep track of how much is spent, what all remains.
Petty cash book format:
A basic format consists of the following columns:
| Date | Voucher No. | Particulars | Amount (₹) | Balance (₹) |
| 01-Apr-25 | PC001 | Courier charges | 150 | 4,850 |
| 02-Apr-25 | PC002 | Office tea | 100 | 4,750 |
| 03-Apr-25 | PC003 | Travel Fare | 200 | 4,550 |
In every transaction, there must be a petty cash voucher that presents that the money has been utilized for a legitimate purpose.
Petty Cash Voucher
The petty cash voucher is a document used for recording the details of transactions from the petty cash fund. It is to know if you paid dark and it always is like a mini receipt. A petty cash voucher is a short written document that is used to maintain and authorize transactions through petty cash fund, usually for small daily expenditures like the purchase of stationery, refreshments and local journey. A voucher contains information like the date, the amount spent, purpose of the expenditure, the signature of the payee, and the petty cashier. These are considered to be proof of the transaction and help maintain an accurate record in the petty cash book. For those small amount expenses petty cash vouchers are very important for small business for recording maintaining petty cash on internal control and to avoid misuse of petty cash.
Petty cash voucher details:
- Date of the transaction
- Amount paid
- Purpose of payment
- Person who received the money
- Signature of the petty cashier
Since petty cash vouchers are numbered, they are matched up with entries in the petty cash book. This ensures that any payment can be traced back, avoiding confusion and fraud.
Types of Expenses Covered by Petty Cash
Petty cash is dedicated to small, everyday, incidental office expenses that don’t need to go through formal payment methods. These are typically low value, high frequency, urgent expenses. Typical expenses covered by petty cash include
- Courier charges
- Tea, coffee, or snacks
- Bus, train, or rickshaw fare
- Pens and paper — stationery
- Minor repair costs
- Recharges or phone bills
Such trivial expenses are commonplace. Therefore, it is essential to maintain records in petty cash book format.
Requirements for Petty Cash
Small, everyday business expenses need to be resolved quickly without the intervention of the tedious approval or banking processes, so this is why petty cash is required. It prevents operational delays by enabling instant payments for things such as local travel, office supplies, or minor repairs. Cash in hand is an alternative way to manage frequent low-pass expenses efficiently, saving time and effort. Let us now see why petty cash is necessary in every organization.
Importance and benefits:
- Saves time — There is no need for formal procedures for small payments
- Faster decisions – They enable rapid spending during emergencies.
- Reduced banking job — Less cheques or bank access for small outgoings
- Supports workflow — Operations unfold smoothly with no hang-ups.
- Tracks petty cash – Keeps a trail for audits.
Without petty cash, any purchase no matter how small would become a long process. For instance, we need to avoid waiting for the finance department to approve and release the funds for ₹50 for a courier. It is why petty cash makes daily working far easier and less stressful.
Reconciling Petty Cash
The petty cash reconciliation basically means reconciling the money left in the box with what is shown in the book. That’s really important for accountability.” In other words, the remaining cash (cash on hand) must match the total of all the expenses and vouchers recorded. It assists in identifying errors, missing receipts, or misuse, and ensures that internal control is in place.
What Is Petty Cash Reconciliation Steps?
Petty cash reconciliation ensures that small cash expenses are tracked and accurate. It helps prevent errors, detects misuse, and keeps the petty cash fund balanced with proper records.
- Count the cash remaining.
- Total all petty cash vouchers.
- Take the original cash amount and subtract the total of vouchers.
- Compare the outcome with the physical cash in possession.
- If it is different, investigate the reason why.
Reconciliation on petty cash example:
- Initial cash = ₹2,000
- Expenses = ₹1,200
- Cash left = ₹800
If the box has only ₹750, there is a shortfall of ₹50. The petty cashier is required to reconcile all vouchers and receipts to track the missing amount.
This could be weekly or monthly to ensure that everything is correct.
Advantages and Disadvantages of Petty Cash
There are pros and cons of petty cash in a business. It enables rapid handling of small expenses without banking delays, yet, if not managed properly, it can result in errors or misuse because it lacks strict monitoring. Petty cash, like any system, has advantages and disadvantages. Let’s look at both sides.
Advantages of petty cash:
- Very easy to use
- Helps in emergencies
- Lowers bank work
- Simple tracking in through petty cash book
- Encourages responsibility
Disadvantages of petty cash:
- Risk of theft
- May be abused without necessary documentation
- No interest earned
- Mistakes in manual entries
- In other words, not for large transactions
The best method is to properly handle petty cash with the help of vouchers, receipts, and reconciliation on a periodic basis.
Examples of Petty Cash Usage
Petty cash examples usage helps us understand how the businesses use petty cash for small and routine expenses. These day-to-day payments tend to be small, messy, urgent, and aren’t easily handled with cheques or online transfers, making petty cash a convenient answer. To help with its real-world understanding here are some petty cash examples:
- The office assistant spends ₹120 on purchasing printer ink.
- The receptionist coughs up ₹60 for the courier delivery.
- Admin offers the team lunch staff gets ₹150.
- The accountant travels for client visits and spends ₹200 on travel fare.
- Principal of the School spends ₹100 for Classroom fixes.
All these are legitimate situations where petty cash is a better choice than bank transactions.
Relevance to ACCA Syllabus
Petty cash in ACCA is covered in: Financial Accounting (FA): recording petty cash and vouchers, imprest system. And then within Map we have to understand petty cash internal controls — this is using Audit and Assurance (AA) knowledge — and we will also need to understand minor operational cash flows of the entity, this is where Management Accounting (MA) knowledge comes in.
Petty Cash ACCA Questions
Q1. What does a petty cash system mainly seek to achieve?
A. Manage fixed assets
B. Record large purchases
C. Day to day expenses Handling
D. Prepare final accounts
Answer: C
Q2. Which is important in petty cash?
A. Paying employees in cash
B. Fixed amount replenished based on spend
C. Unlimited access to cash
D. A type of bank loan
Answer: B
Q3. Petty cash transactions are entered：
A. Journal
B. Ledger
C. Petty cash book
D. Bank statement
Answer: C
Q4. Which of these is petty cash?
A. Buying new computers
B. Paying monthly rent
C. Fee of ₹50 for courier charges
D. Issuing shares
Answer: C
Q5. Who typically oversees the petty cash fund?
A. External auditor
B. Petty cashier
C. CEO
D. Payroll officer
Answer: B
Relevance to US CMA Syllabus
Petty cash is included in the US CMA curriculum under: Part 1 Financial Planning, Performance and Analytics. Its basic field of study is human resources management, internal control and cash management and cost accounting.
Petty Cash US CMA Questions
Q1. Petty cash is usually included in:
A. Non-current assets
B. Current assets
C. Long-term liabilities
D. Fixed capital
Answer: B
Q2. What is a main internal control over petty cash?
A. Verbal approvals
B. No documentation
D. Implementation of pre-numbered vouchers
D. Online transfers only
Answer: C
Q3. Which account is credited when petty cash is replenished?
A. Petty Cash
B. Cash or Bank
C. Capital
D. Debtors
Answer: B
Q4. What includes internal reporting of great petty cash usage?
A. Trial balance
B. Petty cash book
C. Balance sheet
D. Income statement
Answer: B
Q5. If petty cash has more cash than the expected/authorized amount, it indicates:
A. Theft has occurred
B. Cashier spent more
C. Some expenditures are underreported
D. Voucher is missing
Answer: C
Relevance to US CPA Syllabus
And in US CPA, petty cash will hit on AUD (Auditing and Attestation) for internal control testing. FAR (Financial Accounting and Reporting) in the recording and classification of petty cash. BEC — Business Environment & Concepts for risk mitigation in operational processes.
Petty Cash US CPA Questions
Q1. Which entry should be used to replenish a petty cash fund?
A. Debit Petty Cash Credit Expense
B. Debit Expenses; Credit Cash
C. Debit Cash and Credit Petty Cash
D. Debit Capital, Credit Cash
Answer: B
Q2. When auditing petty cash, which of the following control is least important?
A. Sales report
B. Reconciliation process
C. Tax invoice check
D. Market analysis
Answer: B
Q3. A petty cash auditor can’t find the receipts for petty cash vouchers. What should they do?
A. Ignore them
B. Issue new receipts
C. Consider to be risk of misappropriation
D. Add them to inventory
Answer: C
Q4. Where does petty cash fall on the financial statements?
A. Accounts Receivable
B. Bank Reconciliation
C. Cash and Cash Equivalents
D. Deferred Revenue
Answer: C
Q5. Large amounts of petty cash top-ups should need approval from whom?
A. Sales manager
B. Junior staff
C. Authorized finance officer
D. Marketing intern
Answer: C
Relevance to CFA Syllabus
In CFA Petty cash is relevant to: Financial Reporting and Analysis (FRA) at the classification of current assets and for liquidity management. Just some introductory knowledge regarding the internal controls
Petty Cash CFA Questions
Q1. On the balance sheet, petty cash is classified under which heading?
A. Non-current investments
B. Inventory
C. Cash and cash equivalents
D. Intangible assets
Answer: C
Q2. Which financial ratio is affected by petty cash?
A. Return on Equity
B. Quick Ratio
C. Asset Turnover
D. Interest Coverage
Answer: B
Q3. Which of the following best describes petty cash?
A. Investment restricted cash
B. Fund for day to day operational expense
C. Reserve for capital to expand
D. Asset impairment charge
Answer: B
Q4. We both know petty cash does not make into interest-earning accounts!
A. It is too risky
B. It is not allowed by law
C. It has to stay immediately accessible
D. It has an impact on revenue recognition.
Answer: C
Q5. Which of the following financial reporting risk is MOST appertain to petty cash?
A. Inventory overstatement
B. Fraud as a result of lack of oversight
C. Overstated goodwill
D. Deferred tax errors
Answer: B
