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It’s handy to have a small amount of cash at hand for making immediate payments for miscellaneous small expenses. However, even for the spending of a few pounds a system needs to be put in place to ensure this expenditure is accounted for. In this article we explain what petty cash is and how to control the process.
Petty cash is a small amount of money kept on hand for the purpose of small business expenditures such as office supplies and postage, alongside any other financial exigencies. Typically, petty cash is locked in a small box and is replenished frequently to ensure cash is available for any urgent purchases. In most cases this is for items that are £25 or less, however, the maximum amount of a petty cash purchase allowed varies from business to business.
Special care must be taken to protect petty cash from theft or misuse. The following tips will help this process to run smoothly.
Usually, with permission, most employees can use petty cash to pay for business expenses or pay for business items personally and reclaim the cash from petty cash. However, only authorised people – e.g. a Finance Manager will have access to the actual cash and will authorise all payments from petty cash.
It is usually spent on small items such as postage, refreshments and potentially small travel costs. A typical petty cash tin would have a balance at the start of a period of between £20 and £50. This would increase in line with the business size.
At least two people, of a relatively senior level, should control the petty cash tin. Whenever the tin is topped up (i.e. money is taken out of the bank and entered into the tin) this should be recorded in the cashbook and also as a ‘receipt’ to petty cash. All payments made should be authorised by one of the controllers. All receipts should be kept, and where VAT is being reclaimed on expenses, they should be valid VAT invoices. A petty cash voucher should be filled in for each item of expenditure so that the amount of expenditure detailed on the petty cash vouchers for a period should be equal to the cash taken out during a period.
It depends on the size of your business, the amount of cash in the tin and how frequently it is used. Ideally, it should be reconciled at least monthly but the more frequently it is reconciled the better control you will have over the process.
Usually, with permission, most employees can use petty cash to pay for business expenses or pay for business items personally and reclaim the cash from petty cash. However, only authorised people – e.g. a Finance Manager will have access to the actual cash and will authorise all payments from petty cash.
It is usually spent on small items such as postage, refreshments and potentially small travel costs. A typical petty cash tin would have a balance at the start of a period of between £20 and £50. This would increase in line with the business size.
At least two people, of a relatively senior level, should control the petty cash tin. Whenever the tin is topped up (i.e. money is taken out of the bank and entered into the tin) this should be recorded in the cashbook and also as a ‘receipt’ to petty cash. All payments made should be authorised by one of the controllers. All receipts should be kept, and where VAT is being reclaimed on expenses, they should be valid VAT invoices. A petty cash voucher should be filled in for each item of expenditure so that the amount of expenditure detailed on the petty cash vouchers for a period should be equal to the cash taken out during a period.
It depends on the size of your business, the amount of cash in the tin and how frequently it is used. Ideally, it should be reconciled at least monthly but the more frequently it is reconciled the better control you will have over the process.
A petty cash book is a book where you enter all receipts and payments going in and out of petty cash. A petty cash book can be purchased from a stationery shop or website.
Fields in your petty cash book should typically show:
A running balance showing how much money is in your petty cash should also be included and this will need to be recalculated each time money is taken out or added to the petty cash tin. The amount recorded in your petty cash book should also match the amount of money in your petty cash tin.
You can record your daily petty cash receipts and payments in an Excel document. To get started click on the button below to download a copy of an Excel petty cash log.
You need to keep all of your receipts, petty cash vouchers (to fill in when payments are made from the tin) and a record of the ‘top ups’ i.e. the amount to top petty cash up at the end of a period.
It is important that you have tight controls over petty cash.
You should only give suitable people access to petty cash and ensure the box is locked and stored in a locked cabinet and the key is kept safely.
Vouchers should be filled in each time a payment is made and these should be entered into the petty cash book. The vouchers should be checked against receipts and you should have controls to check that the amount was spent for a business purpose e.g you haven’t reimbursed the receptionist for her own postage stamps she’s bought for personal use.
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