Petty cash
Learn what petty cash is, how to set up and manage a fund, and keep your records SARS-ready.
September 2023 | Published by Xero
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Petty cash is a small fund a business keeps on hand to cover minor, everyday expenses that are impractical to pay by card, EFT or cheque.
- Setting up a petty cash system involves appointing a custodian, deciding on a float amount, storing cash securely, and keeping receipts for every payment.
- Reconciling petty cash regularly helps you spot discrepancies early and ensures your records are accurate for tax purposes.
- In South Africa, SARS expects you to keep supporting documents for petty cash expenses, and business records must generally be retained for five years.
What is petty cash?
Petty cash is a small amount of cash a business keeps on hand to pay for minor, everyday expenses that are impractical to pay by card, EFT or cheque. It covers quick purchases like milk for the office, postage stamps or cleaning supplies.
For example, a Cape Town café might keep R500 in petty cash to buy extra milk when supplies run low mid-shift. Even small petty cash purchases should be tracked, as they may be tax deductible as legitimate business expenses.
Why do businesses use petty cash?
Petty cash makes it easier to handle small, unplanned expenses without the hassle of raising an EFT or swiping a card for a few rand. Here are the main reasons businesses keep a petty cash fund:
- Speed and convenience for small, immediate purchases
- Avoids processing card payments or EFTs for tiny amounts
- Keeps minor spending organised and recorded in one place
- Provides a clear trail for reimbursing employees
Types of petty cash
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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.
Businesses manage petty cash in different ways depending on how they want to control and replenish the fund. The four common types are:
- General petty cash: a flexible fund with no fixed replenishment schedule, topped up as needed.
- Imprest petty cash: the fund is set at a fixed amount and replenished back to that amount at regular intervals, making it easier to track spending.
- Emergency petty cash: a reserve kept specifically for unexpected or urgent expenses, such as a last-minute courier.
- Discretionary petty cash: funds allocated for expenses at the custodian's judgement, often used for staff morale items like birthday cakes.
Petty cash examples
Petty cash typically covers small, day-to-day expenses that crop up without warning. Common examples in a South African small business include:
- R50 for milk and coffee for the office kitchen
- R120 for postage stamps at the post office
- R200 to reimburse an employee for a taxi fare to a client meeting
- R80 for cleaning supplies from a nearby shop
- R150 for emergency stationery when a printer cartridge runs dry
How to set up and manage a petty cash fund
A well-run petty cash system keeps small expenses under control and makes reconciliation straightforward. Follow these steps to set up and manage your fund:
- Appoint a custodian who is responsible for safeguarding the cash and authorising payments.
- Decide on the float amount, for example R2,000, based on typical monthly small-expense needs.
- Set a simple petty cash policy that includes a spending limit per transaction (such as R300) and lists acceptable expense types.
- Store the cash securely in a lockable box or drawer with restricted access.
- Issue a petty cash voucher for every payment and attach the original receipt.
- Record each transaction in a petty cash book or journal as it happens.
- Reconcile the fund regularly and replenish it back to the set float amount. This is known as the imprest system, where you top the fund up to a fixed amount at the end of each period.
How to record and reconcile petty cash
Recording petty cash means logging every payment in a petty cash book or journal, noting the date, amount, purpose and receipt number. Reconciling the fund is a simple check: at any time, the cash remaining plus the value of your vouchers and receipts should equal the original float.
For example, if your float is R2,000 and you have R650 in vouchers and receipts, you should have R1,350 in cash. R1,350 + R650 = R2,000. If the totals do not match, investigate the discrepancy before topping up the fund.
Petty cash reconciliation follows the same principle as a bank reconciliation: comparing your records to the actual cash to catch errors or missing entries early.
Petty cash best practices and internal controls
A few simple controls keep your petty cash fund accurate and reduce the risk of misuse. Put these practices in place from day one to protect your business.
- Set a per-transaction spending limit, for example R500, so larger purchases go through your normal approval process
- Restrict access to the locked cash box to one designated custodian
- Use pre-numbered petty cash vouchers for every withdrawal
- Separate the person who approves spending from the person who holds the cash
- Run occasional surprise counts to catch errors or discrepancies early
- Keep every receipt and attach it to the matching voucher before filing
Petty cash vs cash on hand
Petty cash and cash on hand are related but not the same thing. Petty cash is a small, ring-fenced float set aside specifically for minor business purchases. It has a fixed purpose and usually a designated custodian.
Cash on hand is broader. It refers to all of a business's readily available cash and liquid assets, including money in tills, petty cash floats and bank account balances. On a balance sheet, petty cash is one component of the total cash on hand figure.
Is petty cash an asset?
Yes, petty cash is a current asset. It appears on the balance sheet as part of the cash and cash equivalents line. Because the funds are available immediately, petty cash is classified alongside other liquid assets your business can access quickly.
Petty cash and SARS record-keeping in South Africa
To claim petty cash purchases as deductible business expenses in South Africa, the South African Revenue Service (SARS) expects you to keep supporting documents such as invoices and receipts. Without proper documentation, you may not be able to substantiate a deduction if queried. The SARS Tax Guide for Small Businesses outlines documentation requirements for expense claims.
Under the Tax Administration Act, business records must generally be kept for five years from the date you submit the relevant tax return. This includes petty cash vouchers and receipts. For more detail on retention periods, see the SARS record-keeping page.
Keep petty cash organised with Xero
Xero accounting software helps you track small cash expenses, store receipt images, and reconcile your petty cash fund alongside your other accounts. You can record petty cash transactions as they happen and see an up-to-date view of your spending in one place.
Ready to simplify how you manage your business finances? Start your free trial and get one month free.
FAQs on petty cash
Here are answers to common questions about setting up and managing a petty cash fund.
How much petty cash should a small business keep?
The right amount depends on your typical small-expense needs. Many small businesses start with a float between R500 and R2,000, adjusting based on how quickly funds are used each month.
Is petty cash an asset or an expense?
Petty cash itself is a current asset on your balance sheet. When you spend from the fund, each payment becomes an expense recorded against the relevant expense category.
What is the imprest system?
The imprest system is a method of managing petty cash where the fund is topped up to a fixed amount at regular intervals. It makes tracking and reconciling spending simpler because you always start each period with the same float.
How often should you reconcile petty cash?
Reconcile at least once a month, or more frequently if your business makes many small purchases. Regular checks help you spot errors or missing receipts before they become bigger problems.
Do you need receipts for petty cash?
Yes. Keeping receipts for every petty cash payment supports accurate bookkeeping and helps you substantiate expense claims if SARS requests documentation.