Petty cash accounting: imprest, entries, controls

What petty cash is and how it is accounted for

Petty cash is a small float of notes and coins kept on the premises to pay minor business expenses, such as postage, taxis or cleaning supplies, where a card or bank transfer is impractical. It is accounted for as a current asset, usually under the imprest system, and expenses are recorded when the float is topped up. It matters because small, frequent cash payments are easy to lose, misuse or leave unrecorded.

Petty cash is part of cash and cash equivalents on the balance sheet, normally combined with bank balances. The amounts are rarely material to the financial statements, but auditors and owners still care about petty cash because it is one of the few places where cash leaves the business without a bank record, and weak petty cash discipline tends to signal weak controls elsewhere.

The imprest system in one minute

Under the imprest system the business sets a fixed float, say EUR 500. The custodian pays small expenses from the float and keeps a signed voucher with a receipt for every payment. At any moment, cash in the box plus the vouchers for payments made must equal EUR 500. At regular intervals, or when cash runs low, the custodian presents the vouchers and receives a top-up equal to their total, restoring the float to EUR 500.

The ledger account for petty cash therefore stays at the imprest amount, EUR 500, except when the float itself is changed. Expenses are recorded in the ledger when the top-up is made, in one entry that debits each expense account for its total from the vouchers. This keeps posting to a minimum and makes every top-up a reconciliation.

• Fixed float approved by management and recorded in the ledger.
• One named custodian responsible for the cash.
• A pre-numbered voucher for every payment, with receipt attached.
• Top-up equal to the vouchers presented, paid from the bank.
• Count and reconciliation at each top-up and at every month end.

Journal entries: setting up the float

Establishing the float moves money from the bank account to the petty cash account. No expense is recorded at this point, because nothing has been spent: the business has simply moved cash from one place to another. Increasing the float later follows the same pattern, and reducing it reverses it.

• Set up a EUR 500 float: Dr Petty cash 500 / Cr Bank 500
• Increase the float to 750 later: Dr Petty cash 250 / Cr Bank 250
• Reduce the float back to 500: Dr Bank 250 / Cr Petty cash 250
• Close the float entirely: Dr Bank 500 / Cr Petty cash 500, after all vouchers have been reimbursed

A worked month: vouchers, count and top-up

During the month the custodian pays five items from the EUR 500 float: postage 45, taxi 60, office supplies 120 (a net 100 plus 20 of VAT shown on a valid receipt), cleaning materials 80 and staff refreshments for a client meeting 75. The vouchers total EUR 380. The cash that should remain is 500 minus 380, which is EUR 120.

At the month-end count the box holds EUR 118, a shortage of EUR 2. The reconciliation is: cash counted 118, plus vouchers 380, plus shortage 2, equals the float of 500. A small unexplained difference is posted to a cash over and short account; a large or repeated one is investigated.

The top-up needed to restore the float is EUR 382, the vouchers plus the shortage. One journal records the top-up and the month's petty cash expenses. Debits total 45 plus 60 plus 100 plus 20 plus 80 plus 75 plus 2, which is 382, equal to the credit to the bank. After the top-up the box again holds EUR 500 and the petty cash account still shows EUR 500.

• Dr Postage 45
• Dr Travel 60
• Dr Office supplies 100
• Dr VAT recoverable 20
• Dr Cleaning 80
• Dr Staff welfare or entertainment 75
• Dr Cash over and short 2
• Cr Bank 382

The fluctuating (non-imprest) method

Some businesses record every petty cash payment in the ledger as it happens and top the box up with round amounts when it runs low. Each payment is Dr Expense / Cr Petty cash, and each top-up is Dr Petty cash / Cr Bank. The ledger balance then moves up and down and should always equal the cash in the box.

The fluctuating method gives up-to-date expense figures but needs far more postings, and it loses the built-in check of the imprest system, where the top-up amount itself proves the vouchers. It is used where a petty cash book is kept in the accounting system rather than on paper. Whichever method is used, the month-end count must agree to the ledger.

The petty cash book and vouchers

A petty cash book, or petty cash log, lists every receipt into and payment out of the float in date order. An analysed petty cash book adds columns for the common expense types and for VAT, so the column totals feed straight into the top-up journal. It is a book of prime entry, like the cash book for the bank.

Each voucher should show the date, the amount, what was bought and why, the name and signature of the person receiving the cash, the approver's signature, and a sequential number. The supplier's receipt is attached. Missing numbers in the voucher sequence should be explained, and vouchers should be cancelled or stamped when reimbursed so they cannot be presented twice.

VAT and GST on petty cash purchases

Input VAT or GST on petty cash purchases can be recovered like any other purchase, but only with the evidence the tax rules require. A till slip that does not show the supplier's VAT number or the tax amount may not be enough, and the business then records the gross amount as the expense. Train custodians to ask for a proper receipt.

Rules on simplified receipts differ by country. The EU VAT Directive allows member states to accept a simplified invoice for low amounts, up to EUR 100 under Article 220a, and member states set their own details. In the United Kingdom, HMRC allows a simplified VAT invoice for supplies up to 250 pounds including VAT. In Canada, the documentation needed to claim a GST/HST input tax credit is tiered by amount, with thresholds of under 100 dollars, 100 to 499.99 dollars, and 500 dollars or more, as of September 2026; above the lowest tier the receipt must carry more supplier and purchaser details.

Controls that keep petty cash honest

Petty cash controls should be proportionate: the aim is to make misuse hard and detection likely without making a EUR 5 purchase a bureaucratic exercise. These controls suit most small and mid-sized businesses.

• Keep the float small, typically enough for two to four weeks of normal use.
• One custodian per float, with a locked box or safe and a named deputy for absences.
• A maximum amount per voucher, above which payment goes through normal purchasing.
• No IOUs, personal loans, salary advances or cashing of personal cheques from the float.
• Top-ups approved by someone other than the custodian, after reviewing the vouchers.
• Surprise counts by a manager or the finance team at least a few times a year.
• Month-end count and reconciliation signed by the custodian and a reviewer.
• Review of petty cash spend by category against prior months, to spot unusual growth.

Warning signs of petty cash misuse

Petty cash fraud is usually small and repeated rather than large and sudden, which is why it is found through patterns rather than single transactions. When reviewing vouchers before approving a top-up, or during a surprise count, look for the signs below. None proves wrongdoing on its own, but each justifies a question to the custodian.

If a pattern appears, count the cash immediately, compare the voucher sequence with the petty cash book, and ask the suppliers or employees named on a sample of vouchers to confirm the payments. Record the review, even when nothing is found, so the control can be evidenced to an auditor.

• Vouchers without receipts, or receipts that are photocopies, handwritten or from the same supplier every week.
• Amounts just below the per-voucher limit, or round amounts that rarely occur in genuine purchases.
• Top-ups growing month after month without any change in the business.
• Vouchers approved by the custodian who received the cash.
• Gaps or duplicates in the voucher number sequence.
• A float that is always short by small amounts on count day, or a custodian reluctant to take leave.

Period end and common mistakes

At the period end the vouchers in the box represent expenses of the period that have not yet reached the ledger under the imprest system. Either top up the float on the last day so the expenses are posted, or record them with a journal and reverse it when the top-up is made. Otherwise expenses are understated and the petty cash balance is overstated by the value of the vouchers.

Other frequent mistakes: recording the float set-up as an expense; posting the top-up to a single miscellaneous expense account so nothing can be analysed; recovering VAT without a valid receipt; letting the custodian approve their own top-up; and allowing the float to grow informally until it is too large to count quickly. Many businesses now replace most petty cash with prepaid cards or employee expense claims, which leave an electronic record, but a small float often remains for the occasional cash-only purchase.

Petty cash in Skyline Nexus ERP

In Skyline Nexus ERP the Treasury module menu includes Petty Cash alongside Cash Advances and Expense Claims, which has its own Expense Claim Aging report. In the general ledger, Fiscal Authority offers Expense Vouchers, described on screen as a way to manage expense payments and petty cash disbursements; voucher types include payment (PV) and expense (EV) vouchers, and each follows the same draft, submit, approve, post and reverse lifecycle as a journal. When creating the petty cash account in the chart of accounts, the Is Cash Account flag marks it as a cash account.

Expenses entered in the operational Expenses screen post to the ledger when Auto-post Expense Transactions is switched on, using the GL Expense Account set on each expense category. An expense whose category has no GL mapping fails to post rather than landing silently in a default account, so map every category a custodian might use before the first top-up.