What is petty cash?
Petty cash is a small amount of physical money a business keeps on site to pay for minor expenses, such as postage, milk or taxi fares.
What petty cash means
Some costs are too small or too sudden to put through the bank: a pint of milk for the office, a parcel at the post office, cleaning supplies, a parking meter. Petty cash is a float of notes and coins, usually £50 to £300, kept in a locked tin and looked after by one named person.
Fewer businesses use it now that most staff have company cards or claim expenses through apps, but it is still common in shops, cafés, workshops and offices with walk-in visitors.
The imprest system
The most common way to run petty cash is the imprest system. The float is set at a fixed amount. Whenever money is spent, a receipt or petty cash voucher goes into the tin. Periodically the float is topped back up from the bank by exactly the amount spent, which equals the total of the receipts. At any time, cash plus receipts should equal the float.
Example
An office keeps a £150 float. During March it spends:
| Date | Item | Net | VAT | Total |
|---|---|---|---|---|
| 4 March | Stationery | £20.00 | £4.00 | £24.00 |
| 11 March | Postage | £18.50 | £0 | £18.50 |
| 19 March | Milk and tea | £12.30 | £0 | £12.30 |
| 26 March | Taxi to client | £22.00 | £0 | £22.00 |
| Total | £72.80 | £4.00 | £76.80 |
£73.20 is left in the tin. The manager withdraws £76.80 to restore the £150 float, and the bookkeeper posts each item to its expense account, reclaiming the £4 VAT on stationery from the VAT receipt.
Why it matters for your business
Small amounts add up, and cash is easy to lose track of. Without receipts, the costs cannot be claimed as business expenses and VAT cannot be reclaimed. HMRC expects records to support every expense, and unexplained cash differences raise questions in an enquiry. A simple routine, one person responsible, receipts for everything and a monthly count, keeps it under control.
Petty cash shows on the balance sheet as part of cash, within current assets.
Alternatives to petty cash
Prepaid expense cards and company debit cards now do the same job with less handling, less risk of loss and an automatic record of every transaction.
Common questions
Enough for about a month of small expenses, and no more. For most offices that is £50 to £200. Keeping the float small limits the loss if it goes missing and makes the monthly count quick.
Set up a separate petty cash bank account in your software. Record top-ups as transfers from the main bank account, and enter each receipt as a spend money transaction against petty cash, coded to the right expense and VAT rate.
More accounts & bookkeeping terms
- Accounting equation
- Accounts payable
- Accounts receivable
- Accrual accounting
- Accruals
- Amortisation
- Assets
- Bad debt