What is a petty cash?
Petty cash is a small fund of actual money kept on hand to pay for minor, day-to-day expenses that are not cost-effective to process through formal channels by using a company card.
Common uses include purchasing office supplies, postage, refreshments for meetings, and making small employee reimbursements for things like travel or parking.
Why Use Petty Cash?
Convenience: It eliminates the need to use company cards for every small purchase. No need to withdraw cash everytime you need and this eliminates the high costs of bank charges.
Speed: It allows for quick and immediate purchases when needed.
Cost-Effectiveness: For small expenses, the time and effort involved in a formal payment process is often impractical or more expensive than the item itself.
Common Examples of Petty Cash Usage
Office Supplies: Buying stationery, pens, notepads, or other small office necessities.
Refreshments: Purchasing coffee, tea, or snacks for staff or clients.
Postage: Mailing documents or paying for stamps.
Small Travel/Errands: Paying for local taxi fares or parking when an employee runs a quick errand.
Employee Reimbursements: Reimbursing staff for small out-of-pocket expenses.
Other Small Purchases: Flowers for an employee’s birthday or paying for minor repairs.
How It Works
Establish the fund:
A specific amount of money is withdrawn from the bank.
Custodian:
A designated person, the custodian, is responsible for the fund’s security and management. This can be the secretary in the business, personal assistant or accounts clerk / admin individual in the business.
Disbursement:
When a purchase is made, the employee receives the item and provides a receipt or voucher. That gets captured in the company books for records.
Reconciliation:
The fund is periodically replenished to its original amount. This ensures that the balance is always restored to a set level and that all transactions are accounted for.
Reconciling the petty cash is extremely important so that we are able to allocate each expense according to its correct classification.
I the end the reports and line items need to be accurate and indicate the correct status of the business.
For example you cannot withdraw a total of R5000.00 from the business account and allocate it as petty cash on the company profit and loss.
The R5000 needs to be broken down into the funds usage. Because, some of the funds may have been used for cleaning, paying for plumbing, miscellaneous unclassified expenses. As the business owner you need to know how much you are spending on each line expense per period. Otherwise how are you going to plan and control your budget?
This practice ensures that all petty cash remains available for operational needs without any misuse or loss.
Proper management not only simplifies the financial process but also reduces the risk of misappropriation or fraud. It promotes financial discipline and accountability, making it an indispensable component of effective financial management in both small businesses and larger organizations.
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd – Registered Accountant and Certified Tax Practitioner.
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