What Is Petty Cash on a Balance Sheet?

Petty cash is a practical financial tool for businesses to handle minor, immediate expenditures without using checks or electronic payments. It provides quick access to funds for day-to-day operational needs, streamlining small transactions and maintaining efficiency.

Understanding Petty Cash

Petty cash is a small amount of money a company keeps on hand for incidental expenses, especially when checks or credit cards are impractical. Businesses commonly use it for postage, minor office supplies, or reimbursing employees for small work-related costs like taxi fares or parking fees.

The amount typically ranges from $100 to $500, though this can vary depending on the business’s specific needs. Maintaining a petty cash fund ensures smooth operations by preventing delays from formal approvals for low-value transactions. A designated custodian is usually responsible for managing the fund, including enforcing rules, dispensing funds, and requesting replenishments.

Petty Cash as a Balance Sheet Item

Petty cash is a current asset on a company’s balance sheet, representing cash readily available for use within one year. Its liquid nature means it can be used immediately without significant loss in value.

On the balance sheet, petty cash is typically presented within the “Cash and Cash Equivalents” section or as “Cash on Hand.” While it might occasionally appear as a separate line item, its small value often leads to it being aggregated with other cash accounts for reporting purposes, as part of a classified balance sheet. This reflects the specific amount of the petty cash fund at a given point in time.

Recording Petty Cash Transactions

Petty cash accounting primarily uses the imprest system, which maintains the fund at a fixed amount. This system involves three main stages to ensure accurate financial reporting.

Establishing the fund begins by writing a check from the company’s main bank account, cashing it, and placing the money into the petty cash box. The journal entry to record this initial setup involves debiting the “Petty Cash” account and crediting the “Cash in Bank” account. For instance, if a $300 fund is established, the entry would debit Petty Cash for $300 and credit Cash in Bank for $300.

When payments are made from the petty cash fund, individual disbursements are typically not recorded in the general ledger at the time of the transaction. Instead, a system of petty cash vouchers is used internally to document each expense, detailing the amount and purpose of the expenditure. At any given time, the sum of the cash remaining in the fund plus the total of the petty cash vouchers should equal the original established fund amount.

Replenishing the fund restores its original balance. This involves summarizing petty cash vouchers for expenses and drawing a check for that total, adding the cash back to the box. The journal entry debits expense accounts (e.g., Office Supplies, Postage) and credits the “Cash in Bank” account; the “Petty Cash” account is generally unaffected unless the fund amount changes. If a discrepancy exists between cash on hand and vouchers, a “Cash Over and Short” account records the difference as a debit for a shortage or a credit for an overage.