What Is the Purpose of the Petty Cash Fund?

A petty cash fund is a small, fixed amount of money an organization keeps on hand to cover minor, day-to-day expenses. It provides a convenient way to handle immediate cash needs that would be impractical to process through regular payment methods.

The Core Function

The primary purpose of a petty cash fund is to streamline the payment process for small, immediate, and infrequent expenditures. These are transactions where using a check, credit card, or formal purchasing system would be inefficient or time-consuming. Petty cash allows for quick disbursements without the administrative burden of larger financial transactions.

Common examples of expenses covered by petty cash include purchasing small office supplies, paying for postage, reimbursing employees for minor work-related outlays, or covering the cost of refreshments for impromptu meetings. This system enhances efficiency by providing readily available cash for incidental costs, ensuring minor operational needs are met without delay.

Establishing and Using the Fund

Establishing a petty cash fund begins with designating a fixed amount of money to be held separately for small expenses. This cash is entrusted to a specific individual, the petty cash custodian, who is responsible for its management and safekeeping. The custodian typically places the money in a secure location.

When a payment is needed, the custodian disburses the cash after a request. For each expenditure, a receipt or petty cash voucher must be obtained and documented immediately. This voucher details the amount, purpose of the expense, and the date, ensuring a record of every outflow from the fund. This process allows for quick access to funds while maintaining accountability.

Replenishing the Fund

When the petty cash fund becomes low due to disbursements, it is restored to its original fixed amount. The custodian initiates this by gathering all receipts and vouchers for expenditures made since the last replenishment. These documents serve as proof of the cash spent.

The collected receipts are submitted for reimbursement. A check is requested from the organization’s main cash account, equaling the total expenditures supported by the receipts. Once received, this check is cashed, and the funds are added back into the petty cash box, returning the fund to its initial fixed balance.

Maintaining Records

Accurate record-keeping is fundamental to the effective management of a petty cash fund. A petty cash log or ledger records every transaction, including the date, amount, and purpose of the expense. This log provides a clear history of all cash movements.

Maintaining this log allows for a continuous check on the fund’s balance. The sum of the cash remaining and the total value of accumulated receipts and vouchers should always equal the original fixed amount. These records are essential for ensuring the fund is used appropriately and for maintaining financial control and transparency.