Petty Cash

Petty cash is a small amount of cash kept by an organization to cover minor, incidental, or day-to-day expenses that are impractical to pay through cheques or electronic transfers. Key Features Purpose Used for small expenses like postage, office supplies, transport fares, or refreshments. Avoids frequent processing of minor payments through the main cash or bank accounts. Management A petty cash fund is established by issuing a cheque to a petty cash custodian. The custodian safeguards the cash and issues receipts or vouchers for each disbursement. Fund replenishment occurs when receipts are submitted and expenses are recorded in the general ledger. Accounting Treatment Initial issuance of cash is not treated as an expense but a cash transfer. Only after disbursements and recording, the expenses are recognized. Typical Amount Varies by organization size and needs, commonly between ₹10,000 and ₹30,000.

Example: A company maintains a petty cash fund of ₹20,000. The custodian uses ₹500 to buy office stationery and provides a receipt. At month-end, the accounting department records the ₹500 expense and replenishes the fund to ₹20,000.