How to categorize petty cash?
Petty cash is a small fund kept on hand for minor, everyday expenses. It’s recorded as a current asset and used to streamline small payments while maintaining proper receipts and reconciliation.
What is petty cash?
Petty cash is a small amount of physical money kept on hand by a business to pay for minor, everyday expenses that are impractical to pay by check or card. It’s recorded as a current asset on the balance sheet and is managed through a petty cash fund with strict recordkeeping to track small disbursements.
How to categorize petty cash
- Record as a Current Asset on the balance sheet under “Cash” or “Petty Cash.”
- Use a separate “Petty Cash” account in your chart of accounts.
- When funds are used, record individual expenses (e.g., office supplies, postage, parking) under the appropriate expense accounts.
- Replenish the fund by writing a check or transferring funds from the main business account.
- The total of cash on hand plus receipts should always equal the original petty cash balance.
Examples of petty cash uses
- Buying small office supplies (pens, notepads, envelopes).
- Paying local delivery or courier fees.
- Covering parking, tolls, or taxi fares for short business errands.
- Purchasing snacks or coffee for the office.
- Paying minor repair or maintenance costs.
- Mailing costs or postage stamps.
Accounting treatment for petty cash
- Establishing the fund:
Debit Petty Cash and credit Cash/Bank Account. - Recording expenses:
Debit the appropriate expense accounts (e.g., Office Supplies) and credit Petty Cash. - Replenishing the fund:
Write a check for the amount spent (debit the expenses, credit Cash/Bank Account.) - Reconciliation:
Periodically verify that the remaining cash plus receipts equals the fund’s total balance.
