Petty Cash for a Small Business: A Simple Control Routine

Petty cash is a small amount of cash kept at the office, shop or site for minor expenses that are not worth a bank payment: courier charges, tea and snacks for visitors, local conveyance, small stationery, a quick repair. It exists to save time, not to replace the bank.

• ✓Use it for small, routine, low-value expenses that need paying on the spot.
• ✓Do not use it for supplier bills, rent, salaries or advances to staff. These belong in the bank, where there is a record.
• ✓Do not mix it with sales cash from the counter. Takings go to the bank; petty cash is a separate box with its own record.
• ✓Do not use it for personal spending by the owner. Owner drawings should be recorded as drawings, not hidden in expenses.

Under a fixed float, also called the imprest system, petty cash always starts each period at the same amount. Between top-ups, the cash in the box plus the vouchers for what was spent should always add up to that amount. When you top up, you replace exactly what the vouchers show, no more and no less.

This makes the check simple. At any moment, anyone can count the cash, add the vouchers, and see whether the total matches the float. If it does not, something is missing: a voucher, some cash, or both.

Choose the float from your own spending. Look at a few weeks of small expenses and set the float to cover about one to two weeks. Too large a float keeps idle cash in a drawer; too small a float means constant top-ups.

1. Date and a running voucher number.
2. Amount paid and what it was for, in plain words.
3. Who received the money, and their signature where there is no bill.
4. Who approved it, if the amount is above the level the custodian can pay alone.
5. The original bill or receipt attached. A valid tax invoice in the business's name is one of the conditions for claiming GST credit.
6. The expense head it belongs to, such as conveyance, office supplies or repairs.

A payment without a voucher should be treated as a shortage, not as an expense. That one rule removes most of the arguments later.

1. 01

   Hand over the float

   Draw the float from the bank by cheque or transfer, record it in the books, and hand it to one named custodian. The custodian signs for it.

2. 02

   Pay against vouchers

   Every payment gets a voucher and, where possible, a bill. The custodian files them in order in the same box or folder as the cash.

3. 03

   Count each week

   Count the cash and add up the vouchers. The total should equal the float. Someone other than the custodian should do or witness this count.

4. 04

   Top up from the bank

   Total the vouchers by expense head, book them in the accounts, and draw exactly that amount from the bank to restore the float. The top-up record is the summary of what was spent.

5. 05

   Review the pattern each month

   Look at what petty cash is paying for. If one expense keeps appearing, such as a regular courier or a monthly repair, move it to a bank payment with a proper bill.

If the Rs 200 had not been traced, it would be recorded as a shortage and reviewed by the owner, not booked as an expense with no support.

• One custodian at a time. When the custodian changes, count the cash together and both sign the handover.
• A count done or witnessed by someone else, at least weekly and on a surprise day now and then.
• An approval limit. The custodian pays small items alone; anything above that needs the owner's signature on the voucher.
• No IOUs or loans to staff from petty cash. Staff advances go through the bank and are recorded against the person.
• A locked box, kept separate from sales cash.

The petty cash record also feeds your monthly close. Check it alongside the monthly bank reconciliation, so that the top-ups drawn from the bank match the petty cash summaries in your books.