Do You Need Petty Cash Anymore For Your Small Business

As a business owner or anyone involved in accounting or bookkeeping, petty cash should be a familiar term. After all, it’s been around since the 17th century. But, is it still relevant in the 21st century?

What is petty cash?

Petty cash, as defined by the Accounting Coach, “is a small amount of cash on hand that is used for paying small amounts owed, rather than writing a check.” It’s also been referred to to as a petty cash fund, while the person responsible for cash is known as the petty cash custodian.

In the past, business owners used petty cash for small business or day-to-day expenses, such as a stamp or cup of coffee. Instead of writing out a check, it was just more efficient to pay in cash. Businesses also used this cash-on-hand to give customers change.

Whenever funds are getting low, the cash custodian replenishes the cash that had been paid out from the business checking account.

Why cash is important.

Cash transactions can add-up quick. For instance, if your office has a Keurig, you’re probably spending around 26 cents per cup of coffee. Since an average coffee-drinking employee has about two cups per day, you could be spending more $100 a year on one employee’s caffeine addiction. Now, multiply that by the number of employees you have you also drink coffee. You could be spending thousands of dollar per year because you aren’t documenting and tracing these small, daily expenses.

The petty cash system is also more subject to abuse and defrauding and this fund isn’t feasible for larger purchases, like a new computer. Overall, it’s outdated and inefficient, and often causes more problems than it can solve.

However, that doesn’t mean that there aren’t any advantages with petty cash. It reduces paperwork for small purchases, it’s easy-to-understand, and gives employees access to money without trusting them with a credit card. And, it’s perfect when you have to grab something at a store that has a minimum credit card limit.

The do’s and don’ts for petty cash.

The do’s and don’ts for petty cash.

If you do decide to have cash-on-hand, here are the do’s and don’ts for petty cash.

The do’s:

  • Designate a reasonable dollar. Usually between $50 to $100 is sufficient.
  • Your employees should know what petty cash can and can’t be spent on.
  • Hold your employees accountable by requiring them to keep a running log of every transaction.
  • Record every transaction and make sure that it includes; the date, amount, and general description of the transaction.

The don’ts;

  • Don’t give every employee access to petty cash. It should just be limited to one trusted individual.
  • Never leave cash unsupervised. Keep it locked in a drawer or filing cabinet.
  • Track this cash expense by creating a petty cash account in the asset section of your chart of accounts.

The bottom line on petty cash.

Unless you have a business that handles cash or makes frequent inexpensive purchases, petty cash is more of a concept. In fact, there a number of more efficient and secure alternatives, such as a prepaid debit card or credit card that earns cash back or rewards. Having a set limit prevents overspending or employees abusing the card. It’s also easy to track expenses since every transaction is recorded. And, most digital and mobile wallets can be connected to a debit card. That means you and your employees don’t always have to carry around a piece of plastic. Just download and link the card.

Another perk of digital wallets is that you can actually reimburse employees if they purchase anything for the business. Using an app like Venmo you can quickly pay them back, which is not only an effective way to ensuring that they don’t abuse the petty cash system, but this also has a record so you can keep track of the expenses more easily.


Best known as an Entrepreneur and Connector. John was recently named #2 on Top 50 Online Influencers in the World by Entrepreneur Magazine as well as a blogging expert by Forbes. He is the Founder and CEO of Due.

Start Getting Paid Today
Due allows you to send money and get paid instantly.
Try Due for free

Pin It on Pinterest

Share This