Petty cash is a small fund used to pay for miscellaneous business expenses, such as office supplies or travel costs. These are typically small purchases that are not practical to pay by check or through electronic transfer, such as buying office supplies, paying for courier services, or small reimbursements.Petty Cash meaning in accounting: a small fund for daily expenses like supplies and travel, essential for learning basic financial management.It teaches how businesses manage small transactions efficiently without involving the main bank account for every minor payment.
What is Petty Cash in Accounting?
In accounting, petty cash refers to a specific sum of money reserved to cover small, everyday business expenses. It is usually managed by a petty cash custodian or cashier who records every transaction in a petty cash book or log.
For example, if an employee buys a box of pens for the office worth $5, they can get reimbursed from the petty cash fund instead of submitting a formal request for payment.
Purpose of Petty Cash in Accounting
The main purpose of petty cash is to make it easy and quick to pay for small expenses without going through a long approval process. Here are some common uses:
- Buying small office supplies
- Paying for parking fees
- Reimbursing travel expenses for local trips
- Paying delivery or postage charges
In all cases, a proper petty cash voucher is filled out to maintain transparency and accountability.
How Petty Cash Works
The petty cash process works as follows in accounting:
- Establishing the Petty Cash Fund: A fixed amount (e.g., $200) is withdrawn from the bank and kept in the office cash box.
- Recording Transactions: Every small expense paid from the petty cash is recorded with a receipt or a petty cash slip.
- Replenishing the Fund: When the petty cash runs low, the person in charge adds up the expenses and asks to refill the fund from the main cash account.
This simple system helps track minor expenses without adding extra work for the accounting department.
Petty Cash Book in Accounting
A petty cash book tracks all small cash payments. It includes the date, amount, reason for the expense, and who received the money. This helps in auditing and verifying how the cash was spent.
In educational settings, students often practice how to maintain a petty cash book to understand the process of documenting and managing cash expenses effectively.
Petty Cash vs. Cash Account
While both petty cash and cash accounts deal with money, petty cash is specifically designated for small, everyday expenses that arise on a regular basis, such as office supplies or minor reimbursements. On the other hand, the cash account refers to all cash transactions within the business, including larger and more significant payments like rent, salaries, and utility bills. Essentially, petty cash is a smaller fund that operates within the broader cash account to handle minor financial needs.
Importance of Petty Cash in Accounting
Understanding petty cash meaning in accounting is important because:
- It helps manage small transactions efficiently
- It prevents delays in operations
- It ensures proper record-keeping of minor expenses
- It teaches discipline and responsibility in handling company money
For students, learning about petty cash in accounting builds a strong foundation in financial control and internal accounting procedures.
Conclusion
To sum up, petty cash in accounting is a simple yet essential concept for managing small business expenses. By learning how to handle and record petty cash properly, students gain practical knowledge of how businesses maintain control over their finances.
Whether you’re a student or a beginner in accounting, understanding the petty cash meaning in accounting will help you grasp the real-world practices of managing company funds responsibly.