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Petty Cash: Definition, Examples, Types and Guide

10 min read

In the bustling world of business, efficiency is key, and sometimes, it’s the little things that can make a big difference. Let’s introduce petty cash, a modest aspect of money management that, when applied wisely, can revolutionize the way small-scale expenses are handled.

What is petty cash, and how does it help manage small, everyday expenses within a business?

Petty cash is the tiny sum of firm funds that are held in reserve to pay for unforeseen or small costs that don’t justify using a credit card or writing a check.

Petty cash is usually kept in a locked drawer or box, but it’s easily accessible and guarantees easy and rapid payment for regular bills.

Think of it as the office or business superhero. Imagine your office or business is a bustling little city, and every day, there are tiny but important transactions happening—like buying those much-needed coffee supplies or replacing a broken stapler. Instead of using a huge, formal budget for these small expenses, we have something a bit like a “magic wallet” called petty cash.

Petty cash is like the city’s emergency fund for minor expenses—it’s quick, easy, and keeps everything running smoothly without the need for lots of paperwork.

When a minor expense comes up, you can simply draw from the petty cash to handle it swiftly. There’s no need for lengthy approval processes or heaps of paperwork—petty cash provides quick, easy solutions to keep an office or business running smoothly and efficiently!

Important Information About Petty Cash

As mentioned in the previous section, petty cash works as a designated amount of cash that is kept in a secure location, often managed by a responsible person or department. When an expense arises, it’s paid out from this fund, and records are kept to track usage.

Accessibility: Petty cash is strategic cash management or a small quantity of readily available cash for unforeseen costs.
Usage: It can be applied to a number of minor expenses, including flowers, office supplies, business cards, employee lunches that are catered, and employee expense reimbursement.
Departmental allocation: To simplify spending management, larger businesses may have separate petty cash funds for each department.
Reconciliation: All transactions involving petty cash money are documented on the company’s financial accounts, and they are subject to periodic reconciliations.
Rules and controls: To prevent misuse, there are typically guidelines on how petty cash should be handled. This includes keeping receipts, documenting each transaction, and regularly reconciling the fund to ensure accuracy.

Advantages of Petty Cash

Petty cash offers several advantages that are particularly beneficial for managing small-scale transactions efficiently. Here are some key benefits and advantages of petty cash:

Quick and Convenient

It is the easiest way to pay for little, unforeseen bills because it’s quick and convenient. It’s ideal for paying for a delivery person’s gratuity or an employee’s late-night taxi cost.

Reduces Reimbursement Hassles:

Petty cash removes the hassle of employees having to pay for work-related expenses out of pocket and then request reimbursement.

Regular Minor Outlays:

It’s helpful for regular necessities like cleaning supplies, office milk, and stamps.

Emergency Situations:

In an emergency, if there is not enough change in the till, petty cash can also be utilized to provide change for consumers.

Practical Example of Petty Cash

Consider a tiny office where the administrative assistant pays for the weekly team meeting’s coffee and snacks with petty cash. She also uses money to buy a little bouquet of flowers and a birthday card for a coworker.

She reimburses a worker for a cab fare paid on a work-related errand later in the month. Petty cash vouchers, which list the amount spent, the reason for the purchase, and the individual who made it, are used to track all of these costs.

The following are some common instances of small cash purchases:

Office goods: Pens, erasers, staplers, and other little yet necessary office goods.
Food and drinks: Coffee, candies, snacks, or meals that are catered for staff members.
Gifts and cards: Flowers, birthday cards, or other little gifts for staff members or clients are examples of gifts and cards.
Transportation expenses: For quick business excursions or errands, a taxi or auto price is charged.

How Petty Cash Can Fit Into Different Types of Businesses

Petty cash is indeed a versatile tool that can be beneficial for a variety of businesses, but its suitability depends on the size and nature of the business.

Small Businesses

Ideal for small businesses with regular small-dollar transactions. It’s useful for paying for small costs like stationery, coffee for meetings, or unforeseen maintenance.

Medium-Sized Businesses

Ideal for medium-sized companies that want an efficient solution to deal with small expenses without involving traditional procurement procedures. Gives quick access to money for little demands, which contributes to maintaining operational effectiveness and employee happiness.

Large Corporations

Even though it’s less prevalent, some divisions or areas within huge businesses may still use petty cash. Petty cash, for example, can be utilized for small office supplies, client amusement, or travel expenses.

Nonprofits and Educational Institutions

Nonprofits and schools also often use petty cash to manage small expenditures related to events, supplies, or day-to-day operations.

Types of Petty Cash

Overall Petty Cash

This account is designated for sporadic, tiny costs like office supplies, postal costs, and small employee reimbursements. It includes regular products that can be purchased without a credit card or cheque.

Imprest Petty Cash

Imprest petty cash is refilled on a regular basis and keeps a set amount of money. It is frequently utilized for certain objectives, such as paying employees’ business travel expenditures. Whenever the fund runs low, it is replenished to the predetermined amount.

Emergency Petty Cash

Set aside for unforeseen costs, this fund is intended for immediate needs like replacing a broken window or mending a damaged printer. It guarantees that urgent cash requirements can be satisfied right away.

Discretionary Petty Cash

This money, which is managed at the manager’s or supervisor’s discretion, is used for employee rewards or unforeseen expenses. Spending freedom on non-pre-budgeted minor purchases is made possible.

To sum up, petty cash funds come in a variety of forms that assist companies in effectively handling small-scale expenditures, guaranteeing that they can pay for regular expenses, emergency expenses, reimbursements for travel, and discretionary purchases on time.

How Can We Track Petty Cash?

Petty cash tracking entails a number of procedures and best practices to guarantee correct accounting and reduce the possibility of abuse. Here’s how companies can track and manage small cash efficiently:

Petty Cash Keeper

The person designated as the “custodian” of petty cash is in charge of managing the petty cash fund. This individual keeps track of every payment and tops off the account as required.

Documentation and Record-Keeping

A lot of businesses want receipts for every payment made. Some people track who spent the money and itemize their expenses using petty cash vouchers, which are available from office supply stores.

Payment Log

Transactions may occasionally be recorded using a straightforward payment log. Petty cash tracking should be as sophisticated as the rest of the company’s processes.

Petty Cash Role In Ecommerce And Running an Ecwid Powered Online Store

Even if you’re running an online store, you might still have small expenses that require petty cash. For example, purchasing packaging materials or office supplies that aren’t directly tied to online transactions.

Having petty cash on hand allows you to address minor needs quickly without disrupting your ecommerce workflow.

While Ecwid, or your ecommerce platform of preference, manages digital transactions and sales, petty cash covers everyday expenses that support these operations.

For instance, buying packaging materials or handling unexpected small expenses for shipping and delivery.

By keeping your petty cash system organized alongside your Ecwid operations, you ensure that both your physical and digital transactions are well-managed. This coordination helps in maintaining smooth operations, accurate bookkeeping, and overall financial clarity.

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Apr 15, 2024

About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.