Petty cash
Find out what petty cash is, how it works, and how to set up and manage a petty cash fund.
September 2023 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Petty cash is a small amount of physical money you keep on hand to cover minor, everyday business costs without raising a cheque or card payment.
- Most businesses run petty cash on an imprest system, topping the fund back up to a set float once receipts are logged.
- A petty cash book records every transaction, so you can track spending and reconcile the fund against your receipts.
- Petty cash is a current asset that sits on your balance sheet alongside your other liquid funds.
What is petty cash?
Petty cash is a small amount of physical money your business keeps on hand to pay for minor, day-to-day expenses. It saves you from raising a cheque or processing a card payment for low-value purchases.
Businesses typically keep a small float of around $20 to $500, depending on how often they need it. Common uses include buying office supplies, paying for postage, or picking up coffee for a staff meeting.
How does petty cash work?
Petty cash works on a simple cycle: you start with a set amount of money, spend it on small costs, and record each purchase. Keeping receipts and vouchers for every withdrawal is what makes managing a petty cash account straightforward.
Most businesses use an imprest system. You begin with a fixed float, and once the cash runs low, you top it back up to the original amount to match the receipts you've collected. This keeps the fund at a steady level and makes it easy to check that your spending adds up.
What is a petty cash book?
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.
A petty cash book is a simple log where you record every payment made from the fund. It gives you a clear record to reconcile against your receipts and your wider business expenses.
Each entry usually captures the date, the amount, the purpose of the spend, and who took the cash. You can keep this log on paper or in your accounting software for a tidier, searchable record.
Types of petty cash
Not every petty cash fund serves the same purpose, and some businesses run more than one. Here are the main types you might use:
- General: a single float for a mix of everyday, low-value purchases
- Imprest: a fixed float topped back up to the same amount once receipts are logged
- Emergency: a reserve kept aside for unexpected or urgent costs
- Discretionary: a flexible fund a custodian can spend at their own judgement within set limits
How to set up a petty cash fund
Setting up petty cash takes only a few steps and helps you keep small spending under control. Follow this sequence to get your fund running:
- Assign a custodian to look after the fund and approve withdrawals
- Decide the float, based on how much small spending you expect each month
- Store the cash securely in a locked box or drawer
- Log every expense in your petty cash book and keep a receipt for each one
- Reconcile the fund against your receipts and top it back up to the float
Petty cash vs cash on hand
Petty cash and cash on hand sound similar, but they cover different things. Knowing the difference helps you track your money and your cash flow accurately.
Petty cash is the small float you set aside for minor purchases. Cash on hand is broader: it covers all the cash and liquid assets your business can access quickly, including the money in your registers and bank accounts.
Is petty cash an asset?
Petty cash counts as an asset because it's money your business owns and can use straight away. It's worth knowing how it appears in your accounts.
Petty cash is a current asset, so it shows on your balance sheet alongside your other short-term funds.
Manage petty cash with ease using Xero
Keeping on top of small cash spending gets easier when your records live in one place. Xero helps you log expenses, attach receipts, and reconcile your petty cash fund so you always know where your money is going.
Track every transaction, tidy up your records, and see where every dollar goes. Get one month free.
FAQs on petty cash
Here are answers to some frequently asked questions about petty cash to help you manage your fund with confidence.
How much petty cash should a business keep?
Most businesses keep a float of around $20 to $500. Set the amount to match how much small spending you expect over a typical month.
What is a petty cash book?
A petty cash book is a log of every payment made from the fund, recording the date, amount, purpose, and who took the cash. You use it to reconcile the fund against your receipts.
Is petty cash a debit or credit?
Petty cash is an asset, so you record it as a debit when you set up or top up the fund. You credit it when cash is paid out for an expense.
Is petty cash tax deductible in Canada?
Petty cash spent on eligible business costs can be deductible, so keep a receipt for every purchase. The Canada Revenue Agency requires you to keep your records for six years.