Petty cash
Petty cash explained: what it is, how a fund works, and how to set up, record and reconcile it.
September 2023 | Published by Xero
Published Monday 31 August 2026
Table of contents
Key takeaways
- Petty cash is a small amount of physical money your business keeps on hand to pay for minor, everyday expenses.
- Most businesses run petty cash as an imprest fund: a fixed float that you restore to the same amount each time you top it up.
- Good controls keep the fund accurate, so appoint one custodian, require a receipt for every withdrawal, and count the cash on a regular schedule.
- Record petty cash as a current asset, then record the actual expenses when you replenish the fund.
What is petty cash?
Petty cash is a small amount of physical money that a business keeps on hand to pay for minor, everyday expenses. It saves you from raising a bank transfer or cheque every time you need to cover a small cost.
The fund usually covers low-value purchases that are awkward to pay for any other way. Typical examples include:
- Office supplies such as pens, paper, or printer ink
- Postage, courier fees, and small delivery charges
- Snacks, coffee, or refreshments for the office
- Reimbursing staff for small out-of-pocket purchases
Because the amounts are small, petty cash is meant for convenience rather than major spending. Larger payments should still go through your bank account so they are easier to track and reconcile.
Types of petty cash
Businesses handle petty cash in a few different ways. The main distinction is between an imprest fund and a non-imprest fund, but the money can also be earmarked for a specific purpose.
Handy resources
Advisor directory
You can search for experts in our advisor directory
Learn about small business bookkeeping
Get an introduction to the many jobs of a bookkeeper - from data entry to reporting and tax prep
Online accounting with Xero
Automate your accounting in the cloud
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.
- Imprest fund: a fixed float that you restore to the same set amount each time you top it up
- Non-imprest fund: a floating amount that you add to as needed, without a set ceiling
- Emergency fund: cash set aside for urgent, unplanned costs
- Discretionary fund: money a manager can spend at their own judgement within agreed rules
The imprest method is the most common because the fixed float makes the fund easy to check. At any point, your cash plus your vouchers should add up to the original amount.
How a petty cash fund works
Most petty cash funds run on an imprest system. You start with a fixed float, spend from it during the month, and top it back up to the original amount once it runs low.
One person, the custodian, looks after the cash box and approves each withdrawal. Every time money leaves the box, the custodian records the amount and the reason on a petty cash voucher and keeps the supporting receipt.
At the end of the cycle, the vouchers show exactly where the money went. You then withdraw enough from the bank to bring the float back to its starting level, and the cycle begins again.
How much petty cash should you keep?
There is no fixed rule for how much petty cash to hold. A good float covers your typical small expenses for a set period, usually a week or a month, without holding so much cash that it becomes a security risk.
The right amount depends on how often you make small cash purchases. A small retail shop might keep ₱5,000 to ₱10,000, while a larger office could hold ₱20,000 or more.
Many businesses also set a limit on single payments, capping each withdrawal at ₱1,000 or ₱2,000 so that larger costs go through the bank instead. Keeping the float modest protects your cash flow and makes the fund quicker to count and reconcile.
How to set up and manage petty cash
Setting up petty cash takes a few simple steps, and the controls you put in place keep the fund accurate over time. Follow this sequence to get started:
- Decide on a fixed float based on your typical small expenses for the month
- Withdraw that amount from your bank account and store it in a lockable cash box
- Appoint one custodian to hold the box and approve every withdrawal
- Write a short policy covering what petty cash can be spent on and any per-payment limit
- Require a signed voucher and a receipt for each amount taken out
- Count the cash and check it against the vouchers on a regular schedule
- Replenish the fund back to the float once the cash runs low
Strong internal controls are what stop petty cash from going astray. Building solid bookkeeping habits around the fund, such as storing receipts and reviewing the box often, keeps the balance reliable and easy to audit.
How to record and reconcile petty cash
Petty cash is money your business owns, so you record it as a current asset in your books. When you first set up the fund, you move money from your bank account into a petty cash account for the same amount, so your total assets do not change.
You record the actual expenses at replenishment, not at the moment each coin leaves the box. When you top the fund back up, the vouchers tell you how to split the spending across categories such as office supplies or postage. Those amounts then move from the petty cash account into your expense accounts, which flow through to the balance sheet and profit and loss report.
Reconciling the fund means checking that your cash plus your vouchers equals the float. If the totals do not match, the difference goes to a cash short and over account. This small account captures minor discrepancies so your books stay balanced.
Petty cash vs cash on hand
Petty cash and cash on hand are related, but they are not the same thing. Cash on hand is all the physical money your business holds, including till floats, undeposited takings, and any notes and coins in the safe.
Petty cash is one part of that total, set aside specifically for small, day-to-day purchases. In other words, every peso of petty cash counts as cash on hand, but not all of your cash on hand is petty cash.
Keeping the petty cash float separate from your general cash on hand makes it easier to track and reconcile, since its purpose and limit are clearly defined. This clarity also feeds into healthier cash flow tracking across the business.
Pros and cons of petty cash
Petty cash is convenient, but it comes with trade-offs worth weighing before you rely on it. Here is what it offers:
- Settles small purchases on the spot, without a bank transfer or cheque
- Covers vendors and situations that only accept cash
- Keeps minor spending separate from your main bank account
- Gives staff a simple way to buy low-cost items when needed
The drawbacks mostly come down to security and admin. Keep these risks in mind:
- Higher risk of loss or theft than card or bank payments
- Ongoing admin to track vouchers, count the float, and reconcile it
- Incomplete records when receipts go missing
- Overlap with cards and online accounting software, which now cover many everyday costs
Keep petty cash and every expense in order with Xero
Petty cash is easiest to manage when it sits alongside the rest of your numbers in one place. Xero lets you track your petty cash account, code expenses at replenishment, and reconcile the fund against your records, so your balance sheet always reflects what is really in the box. Ready to bring your small spending into view? Sign up and get one month free.
FAQs on petty cash
Here are quick answers to common questions Philippine business owners have about petty cash.
What is an imprest system?
An imprest system is a way of running petty cash where the fund is kept at a fixed amount. You top it back up to that set float each time, so cash plus vouchers always equals the original balance.
What is a petty cash voucher?
A petty cash voucher is a small slip that records the date, amount, and reason for each withdrawal, along with who took the money. It acts as proof of spending until the receipt is attached and the fund is reconciled.
How much petty cash is allowed per transaction?
There is no legal limit, so the cap is whatever your business policy sets. Many businesses limit single payments to around ₱1,000 or ₱2,000 and route anything larger through the bank.
Is petty cash a cash equivalent?
Petty cash is classified as cash rather than a cash equivalent, because it is physical money available immediately. Cash equivalents are short-term investments that can be converted to a known amount of cash at short notice.
Is petty cash an asset?
Yes, petty cash is a current asset because it is money your business owns and can use within the year. It appears near the top of your balance sheet alongside your bank balances.