How to manage petty cash and control expenses for your small business

Published Friday 5 December 2025

Table of contents

• What is petty cash?
• How much petty cash should you keep?
• How does petty cash work?
• What expenses can you pay with petty cash?
• How to record petty cash
• Petty cash best practices
• Manage petty cash efficiently with the right tools
• FAQs on petty cash

Key takeaways

• Establish a petty cash fund between $100-$500 for most small businesses to cover minor daily expenses without tying up excessive cash or creating security risks.

• Designate one person as the petty cash custodian to manage disbursements, collect receipts, and maintain accurate records to prevent misuse and ensure proper accountability.

• Implement strict receipt requirements for all petty cash transactions and reconcile the fund monthly to maintain accurate records and comply with tax obligations.

• Utilise accounting software to streamline petty cash tracking and reconciliation, making it easier to categorise expenses and maintain proper financial records.

What is petty cash?

Petty cash is a small amount of cash that a business keeps on hand for minor, day-to-day expenses. It's for those times when using a credit card or writing a cheque isn't practical, like buying coffee for a client meeting or paying for a small delivery.

Think of it as a convenient float for small, immediate needs, helping you avoid the hassle of formal payment processes for every little purchase.

How much petty cash should you keep?

The right amount for your petty cash fund depends on your business needs. You want enough to cover small expenses for a month or so, but not so much that it becomes a security risk. For many small businesses, a fund between $100 and $500 is a good starting point.

Consider how often your team makes small purchases. If you find you're replenishing the fund too frequently, you can increase the amount. The key is to find a balance that keeps things running smoothly without tying up too much cash.

How does petty cash work?

Petty cash is a small amount of cash that businesses keep on hand to pay for minor expenses when using a card or cheque would be impractical. Most businesses keep between $100 and $1,000 in their petty cash fund, depending on their size and needs.

Setting up your petty cash fund involves these accounting steps:

1. create the fund – take cash from your bank account (for example, $200)
2. record the debit – enter the amount in your petty cash account
3. record the credit – show the withdrawal from your bank account
4. note the purpose – mark that the funds are designated for petty cash

The petty cash reimbursement process works in two ways:

Option 1 – reimbursement after purchase

• Employee pays for expense with personal money
• Employee brings receipt to petty cash custodian
• Custodian records expense in petty cash book
• Custodian reimburses employee from petty cash fund

Option 2 - Advance payment

• Employee requests cash in advance for expected expense
• Custodian provides money from petty cash fund
• Employee brings receipt back after purchase
• Custodian records the expense in petty cash book

Replenishing your petty cash fund

Follow these steps to replenish your petty cash fund.

• Verify records: Check that receipts match entries in the petty cash book
• Calculate shortfall: Determine how much cash is needed to restore the fund
• Submit documentation: Send petty cash book and receipts to your bookkeeper
• Receive new cash: Get replacement funds from the bank
• Update records: Record the new balance in your petty cash book

How bookkeepers handle accounting

Your bookkeeper handles the accounting by:

• Recording the bank withdrawal: Enter the cash transfer from bank to petty cash
• Categorising expenses: Allocate each receipt to the appropriate expense account
• Updating the general ledger: Ensure all transactions are properly documented

If you're a one-person business, or just have a couple of employees, you're probably going to do all of this on your own. You're going to hand out the cash, collect the receipts, and track everything in the petty cash book. You're also going to go to the bank to get more cash and update your accounting records.

What expenses can you pay with petty cash?

You use petty cash for small, infrequent expenses that keep your business running. While every business is different, here are some common examples of what you might use it for:

• Office supplies like pens, paper, or printer ink
• Postage for mailing a letter or small package
• Reimbursing an employee for buying coffee for a client
• Paying for a small, unexpected delivery fee
• Covering travel costs like parking or tolls

How to record petty cash

Petty cash recording tracks every transaction in and out of your cash fund to maintain accurate financial records. The process is straightforward and becomes routine with practice. Using accounting software like Xero simplifies the entire process.

Here's what you need to stay on top of it all.

• Petty cash voucher: Document each expense with the business purpose, amount, date, and employee name (if applicable). Always obtain a receipt when possible.
• Petty cash book: Maintain a running record of your fund balance by documenting all cash additions and expense payments with dates, amounts, and purposes.
• General ledger entries: Record petty cash expenses by crediting your petty cash account and debiting the relevant expense category. For example, buying $20 worth of pencils means crediting petty cash $20 and debiting office supplies $20.

Example of petty cash book or spreadsheet format

A petty cash book or spreadsheet is a simple record of all petty cash transactions.

Petty cash best practices

Follow a few simple rules to keep your petty cash system secure and accurate. These practices will help you prevent errors and keep your records clean.

• Set a clear policy: Decide who can access the fund, what it can be used for, and the maximum amount for a single purchase.
• Keep it secure: Store your petty cash in a locked box or drawer to prevent unauthorised access. This is a critical internal control, as a KPMG survey found that 60 per cent of fraud was committed because of weak business controls.
• Always get receipts: Make it a rule that no cash is given out without a valid receipt. This is essential for accurate bookkeeping and tax compliance, as the Australian Taxation Office requires some business records to be kept for 5 years if they are not fully reconciled.
• Reconcile regularly: Balance your petty cash fund at least once a month. The cash on hand plus the total of your receipts should equal your starting fund amount.

Manage petty cash efficiently with the right tools

Managing petty cash can be simple. Set up a straightforward process and keep clear records so you can handle small expenses easily. Using accounting software helps you track every dollar, making reconciliation quick and easy, so you can stay focused on your business.

Ready to simplify your bookkeeping? Try Xero for free and see how easy it is to manage all your business finances in one place.

FAQs on petty cash

Here are answers to some common questions about managing petty cash.

Is petty cash still relevant for modern businesses?

Yes, it is. While digital payments are common, petty cash is still useful for small, in-person purchases where cards might not be an option or are simply less convenient. It provides flexibility for immediate, minor expenses.

What's the difference between petty cash and other business expenses?

The main difference is the process. Petty cash is for small, immediate cash purchases that are recorded after the fact. Other business expenses are typically larger and go through a more formal approval and payment process, like invoices or credit card transactions.

Can employees access petty cash directly?

It's best practice to designate one person, often called a custodian, to manage the petty cash fund. This person is responsible for disbursing cash, collecting receipts, and tracking the balance. This helps prevent misuse and ensures accurate records.