What are the stages in operating a petty cash fund and its advantages?

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Petty cash is nothing but small amount of cash that kept for minor expenses like office supplies, reimbursing employee, and payment for catered lunch etc. In big companies or in larger companies each department has its own petty cash. The main advantage of having petty fund it is convenient and quick to use. Main disadvantage of having Petty cash is it can be theft, misuse and these funds are monitored periodically.

Sometimes there is confusion between cash in hand and petty cash. Petty cash refers to money (specifically) whereas cash on hand is accessible cash of business.

There are three stages in operating petty cash funds, which are as follows −

  • Fund creation
  • Payment making
  • Replenishing

Fund creation

A petty cashier and determination of funds are important steps in establishing the funds. A petty cashier will look after the petty fund, their recordings and submitting them to the chief cashier. This is useful in estimation of funds to meet the petty expenses on a daily basis.


After getting lump sum amount or imprest cash from the chief cashier for a particular time. Petty cashiers use the printed receipts with serial numbers. In these receipts, both the petty cashier and recipient will sign.

These receipts will be kept in a petty cash box and to maintain the record. An internal auditor is assigned to check the records/petty cash management. Journal entries are not required.


If petty cash is below the minimum limit, petty cashiers furnish for new funds by preparing a statement containing expenditures with receipts to the cash department. After verifying those, they send, reimburse the money (if any) to the petty cashier and release the new money or imprest cash for next period.


  • Small business transactions are recorded.
  • Saves chief cashier time.
  • Control over expenses.
  • Saves efforts.
Updated on 18-May-2022 09:45:39