What is petty cash? Examples and how to manage it in 2026

How much petty cash should a business have on hand?

Every business’s needs are different. This means the amount of petty cash you’ll want to keep on hand will largely depend on your company’s expenses, your budget, and the amount of money you deem appropriate.

However, many businesses choose to keep between $100 and $500 in their petty cash funds. This is enough to help cover those small business-related expenses without requiring your team to get permission for every small transaction.

How to manage petty cash

Petty cash can make it easier for businesses to cover small expenses as needed. But like all assets, petty cash needs to be monitored and managed appropriately. Here are a few tips to help.

1. Set reasonable spending limits

Petty cash is still part of your budget, and that means it’s a good idea to set clear and reasonable spending limits for your funds. The amount you set will depend on your budget and your business’s needs.

Ideally, the amount should be small enough that employees won’t be tempted to steal it but large enough that you don’t have to replenish it too often. The amount you choose is up to you. Try to create a petty cash fund that you think will cover small office expenses for a month. For most businesses, $100 to $500 is more than enough.

2. Specify how your team can use the money

Take the time to explain how your employees can and can’t use these funds. Petty cash is often used to make change for customers and pay for small, erratic expenses that pop up, like office supplies, a small repair, and so on.

Put your petty cash policy in writing and offer some examples of appropriate expenses. You may want to include rules governing the use of petty cash in your employee handbook so your team can easily review the approved uses before using the fund. You can also mandate that all petty cash transactions be under a certain dollar amount, like $25.

3. Require employees to account for expenses

Petty cash doesn’t typically represent a big chunk of a business’s budget. However, your team still needs to account for expenses to reduce the risk of theft or inappropriate use of company resources.

Require employees to maintain a running petty cash log for every transaction, including receipts. Each entry in the petty cash book should include the date, the amount, and what was purchased with the petty cash. Review your petty cash register before you replenish the fund.

You can also use a Microsoft Excel doc or other spreadsheets that track who spent what, when it was spent, and the total amount of spending for both the month and year to date. Not only will this help you hold employees accountable, but it will also ensure you’re more prepared at tax time.

If you need help getting a petty cash log started, look up some free petty cash log templates to do some of the work for you.

4. Distribute petty cash as needed

Though it might be tempting to give everyone access to the petty cash fund, doing so isn’t always the best move. Giving every employee access to petty cash often leads to poor or non-existent recordkeeping, which makes it hard to reconcile your accounts at tax time.

Appoint one employee to oversee the petty cash fund. That person, generally known as a petty cash custodian or petty cashier, will determine if an expense is appropriate, hand out the cash to employees who need it, and ensure the expense log is kept up-to-date.

If your company is growing rapidly or has a large number of employees, you may need to have more than one fund custodian. Make sure anyone acting as a custodian is trustworthy and responsible.

5. Track and record petty cash

Petty cash is a small amount of money, but it adds up quickly as it’s replenished. To track the cash, create a petty cash account in the asset section of your chart of accounts. When you’re ready to replenish the fund, record the expenses in your accounting software based on the petty cash expense log. Then, record the replenishment by debiting the petty cash account and crediting the bank account you used to refill the fund.

If you’re running a proper log as mentioned above, you’ll also be able to easily gather up your petty cash vouchers and cross-reference them with your books to ensure things are accurate. This will set you up for success, not a petty cash accounting nightmare.

How to reconcile petty cash

Reconciling petty cash is an essential component of tracking expenses so you know where all of your money goes each month. This can help you stick to a budget more easily.

The process is easier than you might think. Just follow these steps.

1. Determine the original petty cash amount

Take a moment to figure out how much petty cash you started with. You can do this by checking the ledger to see the initial balance or by viewing your bank statements and journal entries to see how much money you transferred from your business’s checking account to your petty cash fund.

2. Count the cash you have on hand

Physically count the money you have left when reconciling your accounts. Make a note of the money you have on hand and subtract it from the original petty cash balance. This will tell you how much your team has spent.

3. Review all transactions

Go through your petty cash log and compare the total transaction dollar amount against the balance you calculated in the previous step. If the numbers match, your team maintained the log accurately. If they don’t, you’ll need to investigate any discrepancies.

4. Correct the discrepancies

Review the receipts your employees submitted after making their petty cash purchases. Once you identify the cause of the discrepancies, adjust the petty cash log accordingly. This may involve adding entries that were missing or correcting amounts that were entered incorrectly.

5. Refill your petty cash fund

Once you’ve reconciled the accounts, refill your petty cash fund from your business’s checking account to your chosen limit. Keep in mind that your chosen limit should align with your budget. If refilling your petty cash fund to your chosen limit strains your operating budget, you may need to adjust the limit.

6. Update your general ledger

Any petty cash purchases need to be added to the general accounting ledger. This helps with your bookkeeping and accounting efforts and makes it easier to identify your total expenses when preparing your taxes.

The key to successful reconciliation lies in accurate recordkeeping. Make sure anyone with access to the petty cash fund knows how to use the petty cash log. This will help you keep track of purchases more accurately and should make the reconciliation process easier when filling out your accounting journal entries.

Should you consider petty cash an asset?

Businesses should always consider petty cash an asset. Why? These funds are readily available to use as needed to cover small business-related expenses. The money comes from the cash your business already has on hand.

When creating your balance sheet, you’ll want to list petty cash as a current asset. Current assets are ones that you plan to use up within your chosen operating period. Since businesses tend to use up their petty cash funds and replenish them throughout the year, logging the fund as a current asset will help you better understand your business’s true financial position.

Streamline your accounting and save time

Petty cash can help your team make necessary purchases without waiting for accounting to find room in the budget. Properly tracking these expenses and ensuring you have a healthy, accurate cash balance isn’t so bad when you follow the tips above.

Comprehensive and seamless accounting software like QuickBooks can help you track your petty cash expenses and make sure they’re logged accurately in your books. With the right tools, you’ll be able to use petty cash with confidence.