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.