What Is the Usual Amount of Money in a Petty Cash Account?

A petty cash account is a small, readily accessible fund within a business. Its purpose is to cover minor, day-to-day expenses that do not warrant formal processes like issuing a check or using a credit card. This cash reserve maintains operational efficiency, allowing for immediate payments for incidental costs.

Understanding Petty Cash Use

Petty cash is typically used for a range of small, immediate expenditures. These can include purchasing minor office supplies, covering postage for urgent mail, or reimbursing employees for small travel expenses. Other common applications involve buying client refreshments, providing small gifts, or handling unexpected minor repairs that require cash payment.

The frequency and nature of a business’s small cash needs determine the appropriate size of a petty cash fund. Businesses with daily or weekly small transactions benefit more than those with infrequent needs. For instance, a small office might use it regularly for coffee and cleaning supplies, while a larger entity could have multiple departmental funds for varied minor disbursements.

Utilizing petty cash streamlines accounting processes by avoiding numerous small check or credit card transactions, which can be time-consuming and incur processing fees. It allows quick handling of incidental costs, ensuring operations are not delayed. This convenience helps maintain a smooth workflow for small, urgent outlays.

Key Factors for Determining the Amount

There is no single “usual amount” for a petty cash fund; the appropriate sum depends on factors unique to each business or department. A larger organization with multiple departments or frequent small transactions might require a higher fund than a small sole proprietorship. For example, a medium-sized office might maintain $200-$500, while a very small business could operate effectively with $50-$100.

The frequency of disbursements influences the fund size. A business using petty cash daily will need a larger initial fund than one using it weekly or monthly. Similarly, the typical cost of individual expenses plays a role; higher individual expenses require a larger fund.

The replenishment cycle, or how often the fund is restored, also impacts the necessary initial sum. A longer cycle, such as monthly, usually requires a larger initial fund to cover expenses over that extended period compared to a weekly cycle. Conversely, frequent replenishment allows for a smaller initial amount.

Internal control policies also influence the fund’s size and management. These policies often set limits on individual petty cash purchases, typically ranging from $25 to $50, and define who can authorize disbursements. The appropriate amount minimizes frequent replenishment while avoiding excessive idle cash.

Setting Up and Maintaining the Fund

Establishing a petty cash fund involves several practical steps. A specific individual, the petty cash custodian, is designated to oversee the fund. This person is responsible for the cash and its proper use. The determined initial amount is then physically set aside, often placed in a secure petty cash box or locked drawer.

When making payments, each transaction requires documentation. A petty cash voucher or receipt must be completed for every disbursement, detailing the expense, date, amount, and purpose. This voucher serves as proof of payment and tracks fund utilization. Employees receiving funds typically sign these vouchers.

The fund is replenished when the cash balance runs low. The custodian gathers all accumulated vouchers and receipts, which are then submitted for reimbursement, typically to the accounting department. This restores the fund to its original amount, ensuring adequate cash for future small expenses.

Periodic reconciliation maintains the petty cash fund’s integrity. This involves comparing the remaining cash on hand plus all paid vouchers and receipts to the original fund amount. Reconciliation helps identify discrepancies, such as overages or shortages, ensuring the fund is accurately balanced.