Petty Cash
What is Petty Cash?
Petty cash is a small amount of money kept for small purchases such as postage and office supplies.
![pc1](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc1.jpg)
How it Works
A business will usually keep a small amount of cash on hand for incidental expenses.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc2.jpg)
This is known as petty cash.
![pc3](https://seeaccountingnow.online/wp-content/uploads/2021/06/pc3.jpg)
To set up petty cash, you withdraw money from the bank.
![pc4](https://seeaccountingnow.online/wp-content/uploads/2021/06/pc4.jpg)
And you put that cash in the petty cash drawer.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc5.jpg)
To record the set up transaction, you credit the checking account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc6.jpg)
This shows you have taken money from the checking account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc7.jpg)
After this, you debit the petty cash account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc8.jpg)
This shows the money was used for petty cash.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc9.jpg)
During the month, office staff may need to buy incidental office supplies.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc10.jpg)
They may also need to buy entertainment products for staff members.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc11.jpg)
When making a purchase, they take money from petty cash.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc12.jpg)
As they do this, they record the disbursement on a petty cash voucher.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc13.jpg)
Then they place the voucher in petty cash.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc14.jpg)
With petty cash transactions, you take money from petty cash and use it for various expenses.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc15.jpg)
So to record a petty cash transaction, you credit the petty cash account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc16.jpg)
This shows money came from petty cash.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc17.jpg)
Then you debit the relevant expense account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc18.jpg)
This shows the money was used for that particular expense.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc19.jpg)
With the accounts updated, you tally the vouchers.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc20.jpg)
This will show how much money was taken out during the month
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc21.jpg)
After this, you tally the money in petty cash.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc22.jpg)
This will show how much money was actually taken out.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc23.jpg)
The total of vouchers should equal the total of cash disbursed.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc24.jpg)
However, there may be a discrepancy.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc25.jpg)
In this event, you need to record the discrepancy in the cash over and short expense account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/pc26.jpg)
To see how to do this, click here ‘cash over & short account‘
© R.J. Hickman 2020