Petty cash fund

Do you have a Petty Cash Fund?  If you have cash around the office for buying supplies or paying for a COD delivery, how do you keep track of that?

Most businesses can benefit from having a little cash around the office for small incidentals.  The trick is to account for everything and keep it safe.


Here's my tips for a properly working system.


setting up a petty cash fund


  • get a nice metal LOCKING cash box
  • put a pen and a small notebook inside
  • decide on an amount to initially set up your cash box.  Depending on the size of your business, you may want $50 or $100 to start.
  • keep the box locked at all times, and put it in a safe place, either and out of the way drawer or cabinet.
  • keep your key in a safe place as well, like your personal key ring.  You may want to give a trusted employee a duplicate key if someone will need access to the fund while you're away.

Now your fund is set up and ready to use.

Make sure it's used for actual business expenses, not personal use.



I want to talk about meals at this point.  Any business lunches should be documented as to date, persons attending, and business purpose.  Such as:  6/15/XX, myself, Jack Jones of Jordan's Expediting Services, and Janice Joplin of Tulsa Packaging, purpose was to discuss delivery needs for XYZ Customer. That lunch expense would be 50% deductible.

A business is allowed to supply a meal for employees if they are in the business location and working.  These meals would be 100% deductible.  Other business lunches are only 50% deductible.  If on an ordinary day, you pull thru McDonald's on your way from one meeting to the next, that is not a business expense.  Refer to the IRS website, www.irs.gov, for more details on meals and entertainment expenses.


Things I've seen the Petty Cash Fund used for include batteries for your computer mouse, office supplies (paper/pens/file folders), window cleaning, snow shoveling, and a holiday meal for the office workers.

Okay, so we've looked at how to set up your fund, now let's look at using the fund.



using your petty cash fund



Once you gotten your cash box set up, here's the steps to take when you need to use some of that cash.


  • when you take cash out, use a slip of paper and write down the date, amount, and reason for the use of cash.  For example, June 20, $10, cleaning supplies.
  • put the piece of paper and the receipt into the cash box.
  • once a week (or once a month if you don't use it regularly) count all your cash and the amounts on the receipts.  If you initially put $50 in the box, your cash and receipts should add up to $50.  If not, you or whoever you've given access took some cash but forgot to put the receipt in the box.  Investigate.
  • write a check to yourself for the total amount of the receipts.  If you started with $50, and now you've got $27 and receipts totaling $23, write a check for $23.  Cash the check, and put the money back into the box.  You now have $50 again.  That's called 'replenishing the petty cash fund'.
  • now you're good to go again.

If you find your petty cash fund repeatedly short, as in when you add up your cash and receipts you don't get the initial amount of the fund, you need to do some thinking.  Maybe you need to remind whoever has access to the cash box what the rules are.  Use cash, put in a receipt.  If necessary, take away access of the fund to anyone but you.  Then you know you're the one not putting in the receipts! 


Hopefully, as you use this process, it will get to be second nature and you'll always put in the receipts. 


Each month, when you write your check to replenish the fund, keep the receipts with the check stub.  If the description on the receipt isn't clear, write on the receipt what you purchased.  This will be documentation for your business expenses.

Enter the check in your cash disbursements journal, if you're using a manual accounting system, or in your software system, if you're using a computer system.

That's all there is to it!



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