How to keep track of petty cash

In business, petty cash is used to cover small, often unexpected, expenses that might pop up during a business day. These costs can be anything from postage to Uber fares or reimbursing someone for bringing you a coffee and bagel.

This guide will cover:

• What petty cash is
• How to keep track of petty cash
• Why petty cash is important in business
• Petty cash vs cash on hand
• An app to help you manage petty cash

Even though we’re using cash less and less in business and our personal lives, you might sometimes reimburse a supplier or pay a delivery driver. That’s what petty cash is for. It’s good to keep a small amount of cash in a convenient place for miscellaneous purchases.

Having a petty cash fund can give you the flexibility to quickly reimburse or pay small purchases when you can’t use your business debit card. Perhaps you’re swamped and need to ask a friend or family member to the post office and send a customer’s order. In this case, they can take some petty cash with them to cover the postage.

You need an organised system in place to make sure you don’t lose any of your petty cash. Here are a few tips to help you keep track of your petty cash.

An easy way to keep your petty cash safe is to buy a metal lockbox that you can keep it in. Look for a small metal box that can fit in a small area, like a drawer or on a shelf. You also want to make sure the box is safe and has a good lock on it, either a combination lock or key lock. Just make sure it’s difficult to tamper with.

Once you have your lockbox, you should keep it out of sight, but somewhere you can easily access it. Keep your petty cash box in a locked drawer for an extra layer of protection. Wherever you store your petty cash box, make sure it’s not too difficult to find or get into. You don’t want to have to spend ages trying to get into it every time you need cash.

Once you’ve found a safe place to store your petty cash, it’s time to add the money to it. Have a think about how much money you might need to add each month to have enough for any random expenses that might pop up. There’s no use in putting in £10 for the month when you know the petty expenses will amount to more. 

Once you’ve established how much you’ll need to add to your petty cash, it’s good to also make sure you have a good mix of £20, £10, and £5 notes, plus some coins. Doing this will make it easier to reimburse petty cash payments.

It’s also good to think about how your business functions and what it requires. Petty cash can be deducted as a business expense, meaning you can claim tax relief on it and instead have it taken off your profits. This can help you keep your cash flow (money flowing in and out of your business) balanced.

It’s also a good idea to set a limit for how much you spend of your petty cash each time. Petty cash isn’t supposed to replace or avoid accounting control of expenses. Instead, petty cash is meant to be a convenient way to make small purchases here and there.

For example, you could establish a maximum amount to be £20. If a purchase is above this limit, you’ll handle it through the normal buying process as an account payable. Learn more about the accounts payable process here.

It’s important to keep a record of your petty cash transactions, so make sure you get a receipt for every purchase. You record your petty cash transactions on your balance sheet, and recording your petty cash spending will help you keep it in order. It’s also a good idea to sort your receipts into appropriate categories to keep things even more organised. 

A system like Countingup is excellent for this. The app comes with a handy receipt capturing tool that allows you to take a photo of your receipt, which the system processes and adds to the relevant category. Using the Countingup app will save you from writing every purchase down manually, which saves you a ton of time. 

Now, you may wonder what the difference is between simply keeping cash on hand and having a petty cash fund. 

Put simply, petty cash is the small fund your business keeps on hand to cover small emergency and unexpected expenses. Cash on hand refers to your company’s liquid assets, meaning items you can easily, securely, and quickly exchange for cash. Petty cash is part of the cash on hand in a business.

If your business is in retail or the food industry, cash on hand can also include cash you have in your cash register that you haven’t deposited yet. You need to keep enough cash on hand to accept cash payments from customers who don’t want to pay by card and give customers change if needed.

One excellent way to keep track of your petty cash efficiently is to use an app like Countingup. 

With Countingup, you get your business current account and accounting software in one app. It automates time-consuming bookkeeping admin so you can focus on growing your business.
With automatic expense categorisation, receipt capture tools and cash flow insights, you can confidently keep on top of your petty cash purchases and other business finances. The app streamlines your admin so you can focus on doing what you do best. Find out more here.