What is petty cash?
Published
Petty cash is a small cash float held by a custodian for immediate minor expenses that don't warrant a full payment-voucher cycle - deliveries, hospitality, urgent stationery. The best regime for it is the imprest system: a fixed ceiling the balance returns to at every replenishment.
The full cycle, in Al-Waha's entries
Establishment - a SAR 2,000 float:
| Account | Debit | Credit |
|---|---|---|
| Petty cash | 2,000 | |
| Bank | 2,000 |
During the month: the custodian pays against receipts, with no individual entries - receipts accumulate in the float.
Month-end replenishment: receipts totalling 1,540 (delivery 380, stationery 645, hospitality 515):
| Account | Debit | Credit |
|---|---|---|
| Delivery expenses | 380 | |
| Stationery and supplies | 645 | |
| Hospitality | 515 | |
| Bank | 1,540 |
Note: replenishment flows from the bank for exactly what was spent - the float returns to 2,000 while the petty cash account itself never moved. Expenses are recognised at replenishment with their documents, and input VAT is deducted only where a valid tax invoice exists.
Count and shortage: cash on hand 440 + receipts 1,540 = 1,980 against a 2,000 ceiling:
| Account | Debit | Credit |
|---|---|---|
| Petty cash shortage (expense) | 20 | |
| Bank (within the replenishment) | 20 |
A 1% shortage is an incident; a recurring same-direction shortage is a pattern, fixed procedurally, not with entries.
Controls not to skip
- One accountable custodian - shared custody is lost custody.
- A receipt for every spend, with the identity always holding: cash + receipts = ceiling.
- Periodic surprise counts by someone other than the custodian.
- A ceiling sized for two weeks to a month - an inflated float is temptation with no purpose.
Frequently asked questions
An employee asks for a loan from petty cash?
Not its job - staff advances are a separate account with a decision and approval. The float pays expenses; it doesn't lend.
Does a digital-first business need one at all?
With card payments everywhere the need shrinks, and some businesses replace it with a capped expense card - the same control logic through a cleaner channel.