Petty cash

Published Thursday 23 July 2026

Table of contents

• What is petty cash?
• Why do businesses use petty cash?
• Types of petty cash
• Common uses of petty cash
• Is petty cash an asset?
• What is the difference between petty cash and cash on hand?
• How to set up and manage a petty cash fund
• What is a petty cash book?
• How to keep your petty cash safe
• Petty cash best practices
• Simplify your petty cash tracking with Xero
• FAQs on petty cash

Key takeaways

• Petty cash is a small fund of physical money your business keeps on-site to cover minor, everyday expenses like postage, office supplies and travel costs.
• You'll need clear policies, a designated custodian and a petty cash book to track every transaction and keep your records accurate.
• Petty cash is classified as a current asset on your balance sheet, so it should be reconciled regularly and kept secure.
• Using accounting software to log petty cash transactions saves time and reduces the risk of errors when you reconcile your books.

What is petty cash?

Every business has small expenses that pop up without warning. Petty cash gives you a quick way to handle them without going through a formal payment process.

Petty cash is a small amount of physical money your business keeps on the premises to pay for low-value, day-to-day expenses. It's typically stored in a locked box or drawer and managed by a designated person, often called a petty cash custodian. The fund covers minor costs that aren't practical to pay by card or bank transfer, such as buying milk for the office or reimbursing a team member for parking.

Most small businesses keep between 50 and 200 pounds in their petty cash fund, though the right amount depends on how often you need it. The key principle is that petty cash should only be used for small, routine purchases, not large or irregular expenses.

Why do businesses use petty cash?

Not every business expense justifies a bank transfer or card payment. Petty cash fills the gap for those small, time-sensitive purchases that would otherwise slow your team down.

Here are some common reasons businesses maintain a petty cash fund:

• It's faster than raising a purchase order or processing a reimbursement for a 5-pound expense.
• It covers situations where card payments aren't accepted, such as local markets, parking meters or vending machines.
• It keeps your bank statement cleaner by batching small transactions into a single periodic top-up.
• It gives your team a simple way to handle unexpected costs without delays.

For small businesses especially, petty cash reduces the admin involved in processing lots of tiny transactions through your main accounts.

Types of petty cash

Not all petty cash funds work the same way. The type you choose affects how you top up the fund and track your spending.

Imprest petty cash

With an imprest system, you start with a fixed amount and top it back up to that same level at the end of each period. For example, if your fund starts at 150 pounds and you spend 90 pounds during the month, you'd add 90 pounds to bring it back to 150. This is the most common approach because it makes reconciliation straightforward.

General petty cash

A general petty cash fund doesn't have a fixed replenishment amount. You simply top it up as needed, which offers more flexibility but can make tracking harder over time. This approach suits businesses with unpredictable small expenses.

Emergency petty cash

Some businesses set aside a separate fund strictly for unexpected costs, such as emergency repairs or last-minute supplies. This keeps your regular petty cash available for routine expenses while giving you a buffer for surprises.

Discretionary petty cash

A discretionary fund is allocated for non-essential spending, such as team treats or small gifts. It's typically managed with a looser approval process but still needs to be tracked and recorded like any other business expense.

Common uses of petty cash

Knowing what petty cash is for helps you set clear boundaries and avoid misuse. Here are some typical expenses it covers.

• Office supplies like pens, notebooks and printer paper
• Postage and shipping for small packages
• Tea, coffee and milk for the office kitchen
• Parking fees and local travel costs
• Minor cleaning supplies
• Small client meeting expenses, such as refreshments

As a general rule, if the expense is under 25 pounds and needs paying quickly, petty cash is a sensible option. Anything larger should go through your standard purchasing process.

Is petty cash an asset?

When you're organising your accounts, you might wonder where petty cash fits on the balance sheet. Understanding its classification helps you report your finances accurately.

Petty cash is classified as a current asset. It sits under "cash and cash equivalents" on your balance sheet, alongside your bank account balances. Even though the amount is typically small, it's still money your business owns and can use immediately.

This means petty cash needs to be included when you calculate your total cash position. If you're preparing accounts for HMRC or your accountant, your petty cash balance should appear as part of your overall cash figure. You'll also want to make sure it's recorded correctly in your chart of accounts.

What is the difference between petty cash and cash on hand?

The terms "petty cash" and "cash on hand" are sometimes used interchangeably, but they refer to different things in accounting. Knowing the distinction helps you categorise your money correctly.

Petty cash is a specific, designated fund set aside for small business expenses. It has its own custodian, policies and tracking system. Cash on hand is a broader term that refers to all physical currency and liquid assets your business can access immediately, including petty cash, till floats and any other cash reserves.

Think of it this way: all petty cash is cash on hand, but not all cash on hand is petty cash. Your till float at a retail counter, for instance, is cash on hand but serves a different purpose from your petty cash fund.

How to set up and manage a petty cash fund

Setting up a petty cash system doesn't need to be complicated. Follow these steps to get your fund running smoothly from day one.

1. Decide on an amount

Look at your recent small expenses to estimate how much you'll need each month. Most small businesses start with 100 to 200 pounds. You can always adjust the amount later once you see your actual spending patterns.

2. Choose a custodian

Assign 1 person to manage the fund. This custodian is responsible for handing out cash, collecting receipts and keeping the petty cash book up to date. Having a single point of responsibility reduces the chance of errors or missing money.

3. Set clear policies

Write down the rules for your petty cash fund. Include the maximum amount per transaction, what types of expenses are allowed and whether approval is needed before spending. Share these policies with your team so everyone knows the process.

4. Get a secure cash box

Store your petty cash in a lockable box or drawer. Only the custodian and 1 backup person should have access. Keep the box in a secure, non-obvious location within your premises.

5. Create a petty cash book

Record every transaction in a petty cash book, either on paper or digitally. Each entry should include the date, amount, what the money was spent on and who received it. Attach the receipt to the corresponding entry.

6. Reconcile regularly

At the end of each week or month, count the remaining cash and compare it to your records. The physical cash plus your recorded expenses should equal your starting balance. If there's a discrepancy, investigate it straight away.

7. Top up the fund

Once you've reconciled, withdraw the amount needed to bring the fund back to its starting level. Record this top-up in your petty cash book and your main accounting records. If you use accounting software, log the replenishment as a transfer from your bank account.

What is a petty cash book?

Accurate record-keeping is essential for any petty cash system. A petty cash book is the tool that makes this possible.

A petty cash book is a dedicated ledger where you record every transaction from your petty cash fund. Each entry typically includes the date, a description of the expense, the amount paid out, a receipt reference and the remaining balance. Some businesses also categorise expenses (for example, "office supplies" or "travel") to make reporting easier.

You can keep a petty cash book as a physical notebook, a spreadsheet or a digital record within your accounting software. The important thing is that every pound going in or out of the fund is documented. HMRC expects you to keep records of all business expenses, and your petty cash is no exception. For more detail on keeping your records organised, see our guide to small business bookkeeping.

Petty cash vouchers

A petty cash voucher is a form that gets filled in each time someone takes money from the fund. It captures who took the cash, how much they took, what it was for and whether a receipt is attached. The custodian signs off on each voucher, creating a clear audit trail. Using vouchers alongside your petty cash book gives you 2 layers of documentation for every transaction.

How to keep your petty cash safe

Physical cash is harder to track than digital payments, which makes security especially important. A few simple measures can protect your fund from loss or theft.

• Store petty cash in a locked box and keep the key in a separate, secure location.
• Limit access to the custodian and 1 trusted backup person.
• Never leave the cash box unattended or in plain sight.
• Reconcile the fund at least once a week to catch discrepancies early.
• Require receipts for every transaction, no exceptions.
• Conduct surprise spot checks periodically to verify the balance matches your records.

If you notice money going missing regularly, review your access controls and consider reducing the fund size or switching some expenses to a prepaid card system.

Petty cash best practices

A well-managed petty cash system saves time and keeps your records tidy. These best practices help you avoid common mistakes.

• Set a per-transaction limit (typically 25 pounds or less) so the fund stays focused on genuinely small expenses.
• Reconcile weekly rather than monthly to catch errors before they compound.
• Keep petty cash separate from till floats, personal cash and other business funds.
• Use accounting software to record petty cash transactions alongside your other expenses for a complete financial picture.
• Review your fund size quarterly and adjust if your spending patterns have changed.
• Train anyone who might use the fund on your policies, including what counts as an acceptable expense and how to submit receipts.

Staying consistent with these habits means your petty cash won't become a source of confusion at tax time or during an audit. For more on tracking business expenses, see our dedicated guide.

Simplify your petty cash tracking with Xero

Managing petty cash manually can eat into your time, especially when you're reconciling receipts and updating spreadsheets. With Xero's expense management tools, you can log petty cash transactions directly, categorise expenses automatically and reconcile your fund in a few clicks. It's a simple way to keep your petty cash records accurate without the paperwork. Get one month free.

FAQs on petty cash

Here are answers to some frequently asked questions about petty cash.

How much petty cash should a business keep?

Most small businesses keep between 50 and 200 pounds, depending on how often small expenses come up. Start with a lower amount and increase it if you find you're topping up too frequently.

How often should you reconcile petty cash?

Reconcile your petty cash at least once a week. More frequent checks make it easier to spot discrepancies and keep your records accurate.

Can you claim petty cash expenses on tax?

Yes, as long as the expenses are legitimate business costs and you have receipts to support them. HMRC requires you to keep records of all business expenses, including those paid from petty cash.

What is the difference between an imprest and a general petty cash fund?

An imprest fund is topped up to the same fixed amount each period, making it easy to track spending. A general fund has no set replenishment amount and is topped up as needed, offering more flexibility but less predictable tracking.

Is petty cash an expense or an asset?

Petty cash itself is a current asset on your balance sheet. The individual purchases you make from the fund are recorded as expenses when they occur.