Petty cash (definition)
Petty cash is cash that businesses keep on hand for small purchases. For instance, a box of staples for an office or an emergency block of cheese for a cafe.
The meaning of petty cash is simple. It refers to cash you keep on hand for small business purchases. For example, you might have petty cash available so that your staff can quickly go to the shop if you run out of something essential. Or you might use petty cash for random purchases such as doughnuts for staff meetings or birthday cards for employees. Even though petty cash expenses are usually small, you need to track them. They may be tax deductible and you'll also have a better sense of where you're spending cash.
Types of petty cash
There are a few different types of petty cash. Typically, it depends on how you use the cash.
- General: covers a range of occasional expenses.
- Imprest: a petty cash fund with a set amount of cash for a defined period that doesn’t vary.
- Emergency: petty cash funds set aside for emergencies. May cover anything from running out of supplies to paying a vendor whose payment was returned for insufficient funds.
- Discretionary: funds only disbursed for expenses approved by managers or owners.
What is the difference between petty cash and ‘cash on hand’?
Petty cash refers to cash set aside for small purchases. Cash on hand includes all of a business's cash and liquid assets including cash in cash registers and bank accounts.
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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.