In every business, there are frequent small and recurring payments such as postage, stationery, tea and coffee expenses, courier charges, minor repairs, or local conveyance. Recording such small payments through the main cash book can be time-consuming and inconvenient.
To handle these small day-to-day expenses, businesses maintain a Petty Cash Fund — a small amount of cash kept on hand to make minor payments conveniently.
The petty cash system ensures that such transactions are recorded properly without burdening the main cashier or the main cash book with too many small entries. The person responsible for managing this fund is called the Petty Cashier, who works under the supervision of the Head Cashier or Chief Accountant.
The main objectives of maintaining petty cash are:
To simplify the recording of small and frequent cash payments.
To save time for the main cashier by delegating small payments.
To maintain accuracy and control over minor expenses.
To ensure availability of ready cash for urgent small expenses.
To provide clear accountability and documentation of petty expenditures.
The Imprest System is the most common method used for managing petty cash.
Under this system, a fixed amount of cash (called imprest amount) is given to the petty cashier at the beginning of a period — say ₹5,000 for a month. The petty cashier uses this money to pay for small expenses and maintains a Petty Cash Book to record them.
At the end of the period, the petty cashier submits the vouchers and receipts to the head cashier. The total expenses are reimbursed, restoring the petty cash balance to the original imprest amount for the next period.
A petty cash book looks similar to a cash book but contains columns for different types of expenses. It records the date, voucher number, amount, and details of the expense.
| Date | Particulars | Voucher No. | Postage | Stationery | Conveyance | Tea & Refreshments | Total |
|---|---|---|---|---|---|---|---|
| Jan 2 | Paid for postage | 101 | 50 | – | – | – | 50 |
| Jan 3 | Bought pens & papers | 102 | – | 120 | – | – | 120 |
| Jan 4 | Paid auto fare | 103 | – | – | 80 | – | 80 |
| Jan 5 | Tea expenses | 104 | – | – | – | 100 | 100 |
Total Expenses = ₹350
At the end of the period, the petty cashier receives ₹350 again to restore the imprest fund to ₹5,000.
Scenario:
A company maintains a petty cash imprest fund of ₹2,000. During the week, the following expenses occur:
Postage ₹150
Taxi fare ₹200
Stationery ₹250
Tea and Snacks ₹100
The petty cashier spends ₹700 and submits vouchers totaling ₹700.
The head cashier reimburses ₹700 to maintain the imprest fund at ₹2,000 for the next week.
Reduces burden on the main cash book.
Saves time for the chief cashier.
Provides better control over small payments.
Ensures that every expense is supported by a voucher.
Maintains accuracy and efficiency in financial recording.
