Petty cash

Published Thursday 6 August 2026

Table of contents

• What is petty cash?
• What petty cash is used for
• Types of petty cash
• How a petty cash fund works
• How to record petty cash in your accounts
• Petty cash advantages and disadvantages
• Petty cash vs cash on hand
• Manage petty cash with confidence using Xero
• FAQs on petty cash
• Related terms
• Learn more about petty cash

Key takeaways

• Petty cash is a small reserve of physical money your business keeps on hand to pay for minor, everyday expenses such as office supplies, postage or small reimbursements.
• Petty cash is recorded as a current asset, and every payment should be backed by a receipt and logged in a petty cash book so your records stay accurate.
• Assigning one custodian, setting a spending limit and reconciling the fund regularly keeps petty cash secure and easy to manage.
• Petty cash suits quick, low-value purchases, while larger or recurring costs are better paid through your regular accounts.

What is petty cash?

Petty cash is a small reserve of physical money that your business keeps on-site to cover minor, everyday expenses. It is the fund you reach for when you need to pay for something small and immediate, like a roll of stamps or a last-minute supply run, without raising a formal purchase order or writing a cheque.

Even though the amounts are small, it pays to track every petty cash payment so your records stay accurate. Expenses paid from petty cash may be tax deductible for profits tax when they are genuine business costs backed by receipts, though whether a specific expense qualifies depends on your circumstances, so check with your accountant. Recording these payments in cloud accounting software keeps them alongside the rest of your books.

What petty cash is used for

Petty cash covers the small, frequent purchases that come up in any workplace. These are costs too minor for a formal purchase order, but they still need to be paid for and tracked.

Common petty cash expenses include:

• office supplies such as pens, paper and printer ink
• postage and delivery costs
• staff amenities like tea, coffee and cleaning supplies
• minor repairs and replacement parts
• small reimbursements to employees for out-of-pocket purchases

Types of petty cash

There are a few types of petty cash, and which one you use usually depends on how you plan to spend the money. Most small businesses settle on one approach that fits their day-to-day needs.

• General: covers a range of occasional expenses
• Imprest: a fund with a set amount for a defined period that does not vary
• Emergency: funds set aside for emergencies, from running out of supplies to covering a vendor payment that was returned for insufficient funds
• Discretionary: funds only released for expenses approved by managers or owners

How a petty cash fund works

A petty cash fund runs on a simple set-and-replenish cycle. You set aside a fixed amount of cash, spend it down on small purchases, then top it back up to the original balance when it runs low.

The amount is usually modest, anywhere from tens to a few hundred dollars, depending on how often you dip into it. Keep it in a locked box or drawer and put one person, the custodian, in charge of holding the cash, collecting receipts and keeping the records straight.

Here is how the cycle works day to day:

1. Set the fund amount and withdraw that cash from your business bank account
2. Pay for small purchases from the fund, keeping a receipt for each one
3. Log every payment in a petty cash book so the balance always matches the cash left in the box
4. Replenish the fund back to its starting amount once it runs low

For a full walkthrough, see how to set up, track and top up a petty cash fund.

How to record petty cash in your accounts

Petty cash is recorded as a current asset, because it is money your business can use straight away. Keeping the paperwork tidy makes it easy to reconcile the fund and support any tax deductions.

Two documents do most of the work: a petty cash voucher for each payment, showing the amount, date, purpose and who spent it, and a petty cash book that tracks the running balance. You can capture the same detail when recording your business transactions in accounting software.

The bookkeeping follows a familiar pattern of debits and credits. When you create the fund, you debit petty cash and credit your bank account. When you replenish it, you debit the relevant expense accounts, such as office supplies or postage, and credit the bank account for the top-up.

Petty cash advantages and disadvantages

Petty cash can be a practical tool for a small business, but it comes with trade-offs worth weighing up. Good record-keeping habits, covered in these small business bookkeeping basics, help you keep the benefits while managing the risks.

Advantages

The main draw of petty cash is speed and convenience for small spending. Its benefits include:

• quick access to cash for minor, same-day purchases
• no formal approval or purchase order for small items
• fewer out-of-pocket reimbursements for staff to wait on

Disadvantages

The flip side is that loose cash is harder to control than digital payments. Its drawbacks include:

• receipts and change are easy to lose track of
• cash is vulnerable to misuse or theft without clear controls
• every transaction needs manual logging and reconciliation

Petty cash vs cash on hand

Petty cash and cash on hand sound alike, but they describe different things. Petty cash is money set aside specifically for small purchases, tracked in its own log with its own custodian.

Cash on hand is broader. It covers all of a business's cash and liquid assets, including money in cash registers and bank accounts. Petty cash is one small part of your overall cash on hand, ring-fenced for those quick, low-value transactions.

Manage petty cash with confidence using Xero

Petty cash is only one piece of keeping your small business finances in order, and it works best when every payment lands in your books. Xero accounting software helps you record expenses, reconcile accounts and see your cash position clearly, all in one place. Start today and get one month free to see how Xero can simplify the way you track your spending.

FAQs on petty cash

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

What type of account is petty cash?

Petty cash is a current asset, because it is cash your business can use immediately. It sits near the top of the balance sheet alongside other liquid assets.

How much petty cash should a small business keep?

Enough to cover a few weeks of small purchases without leaving large sums sitting idle. Look at how often you make minor cash payments and set an amount that matches that pattern.

What is an imprest petty cash system?

An imprest system uses a fixed float that you always replenish back to the same set amount each cycle. The top-up matches the receipts spent, so the fund returns to its original balance every time.

Are petty cash expenses tax deductible in Hong Kong?

Legitimate, properly documented business expenses paid from petty cash may be deductible for profits tax. Keep the receipts and records, and check with your accountant about your specific situation.

What should I do if my petty cash doesn't balance?

Recount the cash and add up the receipts again to rule out a simple error. If the numbers still don't match, look for a missing receipt or a wrong entry, then document the difference before you replenish the fund.

Related terms

• Chart of accounts
• Balance sheet
• Cash flow
• Accounts payable

Learn more about petty cash

• Small business accounting 101
• Cash vs accrual accounting
• Money guides for small business