when a petty cash fund is in use petty cash transactions are still recorded on financial statements no accounting journal entries are made when purchases are made using petty cash it s only when the custodian needs more cash and in exchange for the receipts receives new funds that the journal entries are recorded the journal entry for giving the custodian more cash is a debit to the petty cash fund and a credit to cash 
if there s a shortage or overage a journal line entry is recorded to an over short account if the petty cash fund is over a credit is entered to represent a gain if the petty cash fund is short a debit is entered to represent a loss the over or short account is used to force balance the fund upon reconciliation the internal revenue service irs recommends filing out petty cash slips and attaching them to receipts to record and document petty cash expenses 1reconciling petty cashthe petty cash fund is reconciled periodically to verify that the balance of the fund is correct typically as the petty cash balance falls to a preset level the custodian applies for additional cash from the cashier at this time the total of all of the receipts is calculated to ensure that it matches the disbursed funds from the petty cash drawer if new funds are needed the cashier writes a new check to fund the petty cash drawer and takes in exchange the receipts from the purchases that depleted the cash the reconciliation process ensures that the fund s remaining balance equals the difference between the original balance minus charges detailed on receipts and invoices if the remaining balance is less than what it should be there is a shortage if the remaining balance is more than what it should be there is an overage although there can be minor variances when unbalanced the source of the discrepancy should be identified and corrected petty cash vs cash on hand petty cash and cash on hand sound a lot alike and they do overlap of the two cash on hand is the more generic term petty cash refers specifically to money literally coins and bills that a company keeps on hand for small outlays usually because using cash is easier than using a check or credit card cash on hand is any accessible cash the business or liquid funds have it can be in the form of actual money like amounts you haven t yet deposited in the bank or smaller bills and coins that you keep in the cash register to make change for customers in this meaning the difference from petty cash refers to where you re keeping the money and how you re using it with petty cash being more for internal business needs expenses by employees and cash in hand referring to funds received from or being reimbursed to customers but cash on hand has a larger meaning as an accounting term in the financial world it also refers to a company s highly liquid assets funds in checking or other bank accounts money market funds short term debt instruments or other cash equivalents though not literally cash it s money that can be easily and quickly accessed which is why it s on hand in short all petty cash is a form of cash on hand but not cash on hand is petty cash advantages and disadvantages of petty cashpetty cash has its pluses cash in many cases remains the quickest simplest easiest way to pay for things it works well to cover small impromptu expenses like a tip for the kid delivering pizzas to the lunch meeting or cab fare home for employees working late it saves the hassle of reimbursing people or expecting them to pay out of pocket for work related items petty cash can also work for frequent but mundane expenses like milk for the office fridge stamps or cleaning supplies while it shouldn t be a habitual practice petty cash in a pinch can be used to make change for customers if the till s running short on the downside the convenience of petty cash can also make it a problem and a risk cash is hard to secure and impossible to track it s very easy for bills to disappear without a trace even if you ve established a careful system of receipts or vouchers this brings us to another drawback of petty cash funds maintaining them keeping records and reconciling them regularly all involve extra work for someone this may be a minor nuisance in large firms with an office manager or accounting department for small businesses it might create a burden commercial transactions are increasingly cashless even at small retailers and restaurants where purchases traditionally have relied heavily on coins petty cash has become an outmoded concept some critics say in between credit cards debit cards payment services like venmo or paypal electronic wallets and other contactless ways to buy things plenty of alternatives exist simple as cash with the added advantages of being traceable secure and less subject to theft the security aspect is often important to small companies who have long feared that keeping cash around is an invitation to crime convenient easy to understandimmediately accessible no advance planning authorization requiredgood for emergencies impromptu needssecurity risk hard to track and subject to fraud theft misuserequires manual monitoring record keepingold fashioned outdatedpetty cash faqspetty cash is the money that a business or company keeps on hand to make small payments purchases and reimbursements either routine or unexpected these are transactions for which writing a check or using a credit card is impractical or inconvenient the english word petty derives from the french petit which means small or little likewise petty means minor or insignificant so petty cash refers to a small sum of money set aside for trifling or little purchases as opposed to major expenses or bills one of the earliest uses of the phrase comes from an educational work on housekeeping by benjamin billingsley advice to the women and maidens of london that dates to 1678 2petty cash is usually kept in a drawer lockbox or large envelope typical petty cash purchases include no petty cash is actual cash money bills and coins cash equivalents are highly liquid securities and other assets that can be easily converted into cash money market funds commercial paper or short term debt like treasury bills however on corporate financial statements petty cash is listed in the cash and cash equivalents section of the balance sheet 3 so the two can be lumped together in that sense each time you tap into a petty cash fund that is take money out a slip or voucher should be filled out this acts as a receipt logging the amount of the withdrawal the date the purpose and other details increasingly these slips are electronic ones entered in a digital spreadsheet or ledger but it can be helpful to keep paper slips too along with receipts from the purchases or payments if possible after a designated interval usually the same time each month or week it s time to reconcile or balance the petty fund account first note the current amount in the fund then subtract this amount from the starting balance this sum is the total withdrawn from the account during that time period next total the amount of all the outstanding slips plus attached receipts this figure should be the same as the withdrawn sum you calculated from the account starting and ending balances and the amount of cash you have in your storage box or drawer should be the same as the current balance of the account if they don t match you ll have to investigate why was there a mathematical error is a receipt missing or incorrect balancing the petty cash account usually occurs when the fund needs to be replenished the petty cash custodian brings all the slips or vouchers to the business bookkeeper cashier or accountant the petty cash receipts are logged into the company s general ledger as credits to the petty cash account and probably debits to several different expense accounts when the petty fund is replenished usually by drawing on a company issued check it s recorded as a debit to the petty cash account and a credit to the cash account 4the bottom linepetty cash is a small amount of cash that is kept on a business or company s premises to pay for minor expenses and needs usually no more than a few hundred dollars while it s easy to understand and simple to use petty cash is subject to abuse easy to lose track of and vulnerable to theft some feel that in contemporary society the petty cash fund is outmoded plenty of alternatives exist for small purchases that are safer and just as convenient 