Petty Cash in Accounting: Meaning, Imprest System, Petty Cash Book and Journal Entries (With Example)

Petty cash is a small amount of cash (notes and coins) that a business keeps on its premises to pay for low-value, day-to-day expenses — such as postage, tea and coffee, taxi fares or small stationery purchases — where paying by bank transfer or card would be impractical. Most businesses run petty cash on the imprest system: a fixed float is set up, each payment is supported by a petty cash voucher, the spending is recorded in an analysed petty cash book, and at the end of each period the float is topped back up by exactly the amount spent.

This guide explains how petty cash works in accounting, with a worked petty cash book, the double-entry journal entries, how to reconcile the cash count, and the controls that stop petty cash going missing. It covers what you need for introductory accounting exams such as ACCA Financial Accounting (FA).

Contents

• What is petty cash?
• The imprest system
• Petty cash vouchers and IOUs
• The petty cash book
• Worked example
• Journal entries
• Counting and reconciling petty cash
• Internal controls
• Petty cash in the financial statements
• Advantages and disadvantages
• FAQ

What Is Petty Cash?

Petty cash is the cash a business holds to pay for small expenses and any other transactions that need physical cash. "Petty" comes from the French petit, meaning small — the fund is only meant for minor, routine spending.

Typical petty cash payments include:

• Postage stamps and courier charges
• Tea, coffee, milk and other staff refreshments
• Taxi, auto-rickshaw or train fares for short business trips
• Small stationery items and printer paper
• Cleaning materials and minor repairs

The cash is usually kept in a lockable cash box or tin, stored in a safe, and managed by one named person — the petty cashier. Every payment out of the box must still be recorded in the accounts. Petty cash makes small payments quicker, but it does not remove them from the bookkeeping.

The Imprest System of Petty Cash

Under the imprest system, the business decides on a fixed amount — the imprest or float — that should be in the petty cash box at the start of each period (for example, $200 per week or per month).

1. The main cashier gives the petty cashier the imprest amount from the bank.
2. During the period, the petty cashier makes payments, each supported by a voucher.
3. At the end of the period, the petty cashier totals the vouchers.
4. The main cashier reimburses exactly the amount spent, which restores the float to the imprest amount.

The key check: at any point, cash in the box + total of vouchers = imprest amount. If it doesn't, something is missing or unrecorded.

Non-imprest (fluctuating float) system: some small businesses simply add cash to the box whenever it runs low, in any amount. This is simpler but gives much weaker control, because there is no fixed figure to check the box against.

Petty Cash Vouchers and IOUs

A petty cash voucher is a pre-numbered form recording each payment from petty cash. It usually shows:

• Voucher number and date
• Amount paid, and any sales tax (VAT/GST) included
• What it was for
• Who received the money, and their signature
• Who authorised the payment

The supplier's receipt is attached to the voucher as proof of purchase. If an employee paid with their own money, they are reimbursed from petty cash only when they hand in the receipt.

If cash is taken out before the purchase, the petty cashier puts an IOU ("I owe you") note in the box showing the amount, the date and who took the cash. Once the purchase is made and any change returned, the IOU is replaced by a voucher with the receipt attached. IOUs should be cleared quickly — they are not a way to lend cash to staff.

The Petty Cash Book

The petty cash book records all money going into and out of petty cash. Its purposes are to:

• Summarise the vouchers so the totals can be posted to the general ledger in one go, rather than one voucher at a time.
• Show the balance of cash that should be in the box, so it can be checked against a physical count.

Most businesses use an analysed petty cash book: receipts are recorded on the left, and payments on the right, with a "Total" column plus analysis columns for each type of expense and a column for recoverable sales tax (VAT/GST). The column totals then give the figures for the journal entry.

The petty cash book is a book of prime entry. In many systems — and in exam questions — it also acts as the petty cash ledger account itself, so it forms part of the double-entry system.

Worked Example: Analysed Petty Cash Book

A business runs a weekly imprest of $200. During the week of 1 March, the petty cashier made the following payments:

1. Train fare to a client meeting — $30
2. Courier charge — $20
3. Office cleaning materials — $40
4. Tea and coffee for staff — $40
5. Pencils — $12, including $2 VAT
6. Office rubber stamp — $36, including $6 VAT

How it works:

• Total payments are $178, and the analysis columns add up to the same figure (30 + 20 + 40 + 40 + 40 + 8 = 178). Always check this cross-cast.
• The book shows $22 should be left in the box ($200 − $178).
• On 8 March, the main cashier reimburses $178 — exactly the amount spent — restoring the float to $200.

Petty Cash Journal Entries

Using the worked example above:

1. Setting up the petty cash float

2. Recording the week's petty cash expenses

The analysis column totals are posted to the relevant expense accounts.

3. Reimbursing (topping up) the float

After step 3, the petty cash account is back to its $200 imprest balance. Only the expenses (step 2) affect profit — setting up and topping up the float simply move cash between bank and petty cash.

Counting and Reconciling Petty Cash

At the end of each period, the petty cashier physically counts the notes and coins in the box, usually on a cash count sheet listing each denomination. The total counted is the cash in hand, which should agree with the balance in the petty cash book ($22 in the example).

If they don't agree, check for:

• Miscounted notes or coins, or arithmetic errors on the count sheet
• A petty cash book that has been added up incorrectly
• Vouchers missing from the petty cash book, or recorded at the wrong amount
• A payment made without a voucher
• An IOU still in the box that hasn't been cleared

Unexplained differences: if a shortage can't be explained after investigation, it is written off with management approval — for example, a $2 shortage would be recorded as Debit Cash shortages (expense) $2, Credit Petty cash $2. Regular or repeated shortages should be escalated, as they can indicate theft.

Petty Cash Internal Controls

• One custodian: a single named petty cashier is responsible for the box, so there's clear accountability.
• Secure storage: the cash box is locked and kept in a safe, with limited key access.
• Payment limits: a maximum amount per voucher (for example, $50); anything larger goes through normal purchasing.
• Pre-numbered, authorised vouchers: every payment needs a numbered voucher, a receipt and an authorising signature.
• Reimbursement only against vouchers: the float is topped up only for the total of approved vouchers.
• Independent and surprise counts: someone other than the petty cashier counts the cash from time to time without notice.
• No personal loans: IOUs are only for business purchases and must be cleared promptly.

Many businesses now reduce petty cash by using company debit or prepaid cards and expense-management apps, which create a digital record of each small purchase automatically.

Petty Cash in the Financial Statements

Petty cash is a current asset. In the trial balance it appears as a debit balance, and in the statement of financial position (balance sheet) it is included within cash and cash equivalents, since IAS 7 defines cash as cash on hand and demand deposits. The expenses paid from petty cash appear in the statement of profit or loss under their normal expense headings.

New to trial balances? Read what is a trial balance.

Advantages and Disadvantages of Petty Cash

Advantages

• Speed and convenience: small, urgent purchases don't need a bank payment or purchase order.
• Less admin in the main ledgers: many small payments are summarised and posted as a few totals.
• Built-in control under the imprest system: cash plus vouchers must always equal the fixed float.
• Spending limit: the fixed float caps how much can be spent before a review.

Disadvantages

• Risk of theft or loss: physical cash is easier to misuse than a bank balance.
• Missing receipts: without receipts, expenses and recoverable VAT/GST can be lost.
• Time to administer: counting, reconciling and topping up takes regular effort.
• Only suitable for small amounts: larger purchases must go through normal payment processes.

Studying accounting? Petty cash, the imprest system and books of prime entry are core topics in ACCA Financial Accounting (FA). For more fundamentals, see our basics of accounting series, starting with the purpose of accounting.

Petty Cash FAQ

What is petty cash in accounting?

Petty cash is a small amount of physical cash a business keeps to pay for low-value, day-to-day expenses such as postage, refreshments and small stationery. Every petty cash payment is supported by a voucher and recorded in a petty cash book.

What is the imprest system of petty cash?

Under the imprest system, petty cash starts each period with a fixed float. At the end of the period, the float is reimbursed by exactly the amount spent, so it returns to the fixed amount. At any time, cash in the box plus vouchers should equal the imprest amount.

Is petty cash an asset?

Yes. Petty cash is a current asset. It shows as a debit balance in the trial balance and is included in cash and cash equivalents in the statement of financial position.

What is the journal entry for petty cash expenses?

Debit each expense account (and input VAT/GST, if recoverable) with the analysis column totals, and credit petty cash with the total spent. When the float is topped up, debit petty cash and credit bank with the same total.

Is the petty cash book a book of prime entry?

Yes. The petty cash book is a book of prime entry. In many systems it also serves as the petty cash ledger account, so it forms part of the double-entry system as well.

What happens if petty cash is short?

First check for counting errors, missing vouchers and uncleared IOUs. If the shortage still can't be explained, it is written off with management approval by debiting a cash shortages expense account and crediting petty cash. Repeated shortages should be investigated.

Written by the Eduyush Editorial Team. Last updated: September 2026.