Petty cash: how to set up, track and reconcile a fund

Petty cash is a small, fixed amount of cash a business keeps on hand for minor purchases that aren’t worth a card swipe or a check: a roll of tape, a bag of ice, stamps, a parking meter. Kept properly, a petty cash fund saves you from digging into your own wallet or the register drawer. Kept badly, it’s where small amounts of money quietly disappear.

This guide covers how to set up a petty cash fund, the rules that keep it clean, a petty cash log template you can copy, and how to replenish and reconcile it. It also covers the one rule most small sellers break: keeping it separate from the register.

What a petty cash fund is

A petty cash fund is a set amount of cash, usually $100 to $300 for a small shop, kept in a locked box or envelope and used only for small business expenses. Every time someone takes money out, they leave a receipt or a note in its place. At any moment, the cash plus the receipts should add up to the original amount.

That fixed starting amount is called the imprest amount, and the method is called an imprest system. You don’t top up the box randomly. You refill it back to exactly the same amount, and the receipts tell you what was spent.

What petty cash is for, and what it isn’t

Good uses:

• Small supplies: tape, zip ties, cleaning supplies, receipt paper
• Postage and small shipping costs
• Ice, a forgotten ingredient or extra cups on a busy market day
• Parking and tolls on the way to an event
• Coffee or snacks for volunteers helping at a booth

Things that shouldn’t come out of petty cash:

• Wages or tips for staff, which need proper payroll records
• Supplier invoices and stock purchases, which belong in your normal accounts payable
• Personal loans or IOUs for anyone, including the owner
• Making change for customers
• Anything over your set limit per purchase

How to set up a petty cash fund

1. Choose the imprest amount. Look at what you typically spend on small cash purchases in two to four weeks and round up. A food truck that buys ice and odds and ends most weekends might pick $200. A boutique that rarely needs cash might be fine with $100.
2. Withdraw it from the business bank account. Write a check to petty cash or make a withdrawal, and record it in your books. The money is still a business asset; it’s just moved from the bank to a box.
3. Pick a custodian. One person is responsible for the fund. Others can request money, but the custodian hands it out and keeps the log.
4. Get a lockable box or bag. Keep it somewhere secure and away from the register.
5. Start a log. Use the template below, on paper or in a spreadsheet.

Petty cash rules that keep it clean

• Set a limit per purchase. For example, nothing over $50 without the owner’s okay.
• No receipt, no reimbursement, or a signed note. If a receipt truly isn’t available, like a parking meter, the person writes a note with the date, amount, purpose and their signature.
• Log every withdrawal at the time. Not at the end of the week from memory.
• Never mix in sales cash. Customer payments go in the register. Petty cash only ever comes from the bank.
• No IOUs. An IOU in the box is a loan out of business money with no record in your books.
• Count it on a schedule. Weekly or at every replenishment, and sometimes unannounced.

Petty cash log template

Copy this into a spreadsheet or print it. Start each log with the imprest amount as the opening balance and subtract each payment in the Balance column. Here it is with a month of sample entries for a market stall with a $200 fund:

Total spent is $97.06, and $200.00 − $97.06 = $102.94, which matches the last balance. For a blank version, keep the same six columns and leave the rows empty:

Add a column for the initials of whoever took the money if more than one person uses the fund. Staple or clip the receipts to the log sheet in date order.

How to replenish petty cash

Replenish when the balance drops to a set point, say a quarter of the fund, or on a fixed schedule like the end of each month.

1. Add up the receipts and notes. In the example, $97.06.
2. Count the cash in the box. It should be $102.94.
3. Withdraw or write a check for the amount spent, $97.06, from the business bank account. That brings the box back to exactly $200.00.
4. Record the spending in your books by category: supplies, postage, travel and so on. This is when petty cash purchases actually become business expenses in your records.
5. Start a new log sheet with a $200.00 opening balance and file the old sheet with its receipts.

Business expenses need records. The IRS explains what to keep in its guidance on recordkeeping for small businesses, and petty cash receipts are part of that.

How to reconcile petty cash

Reconciling means checking that the fund adds up. The test is simple:

Cash in the box + receipts and notes = imprest amount

If the box holds $101.94 and the receipts total $97.06, that’s $199.00 against a $200.00 fund: $1.00 short. Small differences happen with rounding or a missed coin. Record the difference as over or short in your books so the fund still starts fresh at $200. If shortages repeat or grow, tighten the rules: one custodian, a locked box, and surprise counts.

Keep petty cash separate from the register and float

This is the most important rule for anyone who also runs a cash drawer. Petty cash, the register float and the day’s sales cash are three different pots of money:

• The float is the change you put in the drawer at the start of a shift so you can make change.
• Sales cash is what customers paid you during the shift.
• Petty cash is a separate fund for small purchases.

If you grab $10 from the register to buy ice, your drawer comes up $10 short at close, and you’ll spend time working out whether it was a mistake, a miscount or theft. Worse, the ice never gets recorded as a business expense, because the only trace of it is a short drawer. Our guide on how to balance a cash drawer covers the end-of-shift count, and the cash drawer count sheet gives you a printable form for it. The cash counter tool is handy for counting the petty cash box too.

Petty cash also counts as cash on your balance sheet, alongside your bank balance and the register float. And for the bigger picture of money coming in and out, see cash flow for small business.

Where SleepingFire fits

SleepingFire is point-of-sale software, not accounting software, so it doesn’t track petty cash. Keep the fund and its log separate, as above. What it does help with is the other side of the line: each shift starts with a counted float, cash sales are recorded as they happen, and expected cash at close is calculated automatically, so the register stays clean and you aren’t tempted to treat it as a spending fund. The daily Z-report gives you a downloadable PDF of the day’s totals. See the sales reports.

Frequently asked questions