Managing Your Business's Petty Cash Effectively
Introduction
For many small businesses, petty cash is an essential part of daily operations. It's used for minor expenses that are too small or urgent to pay via bank transfer or company card.
However, without a clear system, managing petty cash can lead to errors and confusion. This guide provides a simple, three-step method for managing your petty cash effectively, ensuring accurate records and a smooth accounting process.
We'll also explain how you can use a Petty Cash record where you pay Petty Cash from your Till Takings
What is Petty Cash?
Petty cash is a small fund of cash kept on hand by a business to pay for minor, day-to-day expenses. These might include:
- Office supplies (e.g., printer paper, pens)
- Fuel for a work vehicle
- Stamps and postal fees
- Small refreshments for a meeting
The Three Golden Rules of Petty Cash
To avoid a messy petty cash box, follow these three simple rules every single day.
Have a Start and End Balance
Begin each day with a clearly recorded amount of cash. The amount you end with should be the sum of your starting balance plus any money added, minus any money spent.
Record Every Transaction
Every time money goes in or out of the box, you must record it. This means noting the date, description, and amount. You should also get a receipt for every expense. No exceptions!
Count Up at the End of the Day
Before closing up, count the cash you have left and compare it to what your records say you should have. If there is a difference, record it as a discrepancy.
These rules form the basis of a simple "petty cash book" or record, which is a vital tool for business owners. The final balance from one day becomes the opening balance for the next.
Your Daily Petty Cash Book
Petty Cash records are generally kept where a business has a small tin of cash to pay small expenses.However, you can still use a Petty Cash Book to help with expenses paid from your till takings.
Using the Petty Cash Book for Tills
In this scenario, you're essentially using your till as the petty cash pot. Here’s how to use the sheet:
- Leave the first line open. This line will be used for your total till takings at the end of the day.
- Complete the rest of the sheet as normal each time you pay anything out of the till (e.g., buying stamps or a coffee for the office). Make sure you get and keep a receipt for every expense.
- At the end of the day, count your total cash takings. Enter this amount on the first line as your 'Money In' for the day, with the description "Daily Takings."
- Finally, compare the Actual Cash to what your sheet says you should have. The sheet will have calculated your expected closing balance by adding your daily takings and subtracting all the petty cash payments you made during the day. Any difference is your discrepancy.
Daily Petty Cash Book Example
| Date: 15/09/2025 _1_ of _1_ | Opening Balance (OB): £150.00 | |||
|---|---|---|---|---|
| Ref / Receipt # | Description / Reason | + Money In (£) | - Money Out (£) | = Running Total (£) |
| Withdrawal | Cash from bank | 200.00 | 350.00 | |
| R001 | Window Cleaning | 10.50 | 339.50 | |
| R002 | Stamps for post | 13.80 | 325.70 | |
| R003 | Milk & sugar for office | 4.75 | 320.95 | |
| Deposit | Cash paid to bank | 200.00 | 120.95 | |
| Totals In/Out: | £200.00 | £229.05 | £120.95 | |
| Expected Cash (Final Running Total) | £120.95 | |||
| Actual Cash (Counted Total) | £115.95 | |||
| Discrepancy (Actual VS Expected) | £5 Short | |||
Understanding the Sheet
Opening Balance (OB): This is the amount of cash you have at the beginning of the day. It should be the exact same figure as yesterday's closing balance, so copy it from there. Don't forget to double check the expected money is there at the start of the day.
Money In: The amount of cash added to the petty cash pot. This is often cash taken out of the business bank account or small amounts from takings.
Money Out: The amount of cash spent on expenses. Every single penny spent must have a receipt to back it up.
Running Total: This is the current cash balance after each transaction. It's a key tool for checking your math as you go.
Example: The first line is the OB: £150.00 plus £200.00 cash from bank = £350.00
Actual Cash: This is the amount of cash you physically count at the end of the day. It should match your final running total.
Discrepancy: If your actual cash doesn't match the expected cash, this is where you note the difference. It could be a surplus (more cash than expected) or a shortage (less cash than expected). Always investigate discrepancies to understand why they occurred.
Copy the Closing Balance to the next day's Opening Balance to keep your records continuous.
You should then put any receipts for the day together with your Petty cash Sheet to hand to your accountant. That way they will have everything they need to record your Petty Cash transactions for each day.
Printable Petty Cash Sheets to Use
To make the process as easy as possible, we have created a simple daily petty cash sheet that you can print and use for your business. It is based on the 'Three Golden Rules' above and ensures you keep a clean, accurate record for your accountant.
The Importance of an Accurate Petty Cash Book
Keeping a clear and accurate record of your petty cash is essential for several reasons:
- Audit Trail: It provides a clear and organised record of all cash transactions for your accountant and for HMRC.
- Reduces Errors: The daily count helps you spot any mistakes or missing receipts immediately, so they can be corrected easily.
- Prevents Fraud: A formal process ensures that cash is used only for legitimate business expenses.
- Simplifies Year-End: Having an organised petty cash book at the end of the year makes preparing your business accounts much simpler, saving you time and effort.
**Note:** This information is a general guide to help small business owners manage petty cash. While a physical record is helpful, you should also consider using a simple spreadsheet or accounting software to maintain these records digitally. Always keep your receipts in a safe place, as they are essential for your business's records.