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4 Reasons Businesses Still Need Petty Cash

Updated on March 3rd, 2023
Frank cash

In the past I worked in several different jobs before I began my freelance business. Several of those jobs were in brick and mortar businesses that had petty cash on hand.

This money was used for a variety of different things and then replenished every so often. The receipts were removed, more cash and small change was added.

Of course, many businesses these days are trying to go paperless and digital. Despite that, there are reasons businesses still need petty cash.

Why Keep Petty Cash?

A petty cash fund is generally kept so that employees of a business can make small purchases without having to requisition money, use a company credit or debit card, or have a check cut. These types of transactions require more time and paperwork to complete.

Keeping petty cash on hand for small purchases, however, allows employees to go around some of this red tape.

Let’s say the office you work in has run out of coffee. To buy more you may have to fill out a form and then present it to the bookkeeper for a check.  Obviously to do that you would first have to know the exact amount of money you will be spending.

That’s just the first problem. Then next is that you may have to wait a few days for the bookkeeper to cut the check when other bills are paid. Meanwhile, the office is without coffee and your coworkers are grumpy and difficult to work with.

Avoiding such a scenario would be much better, don’t you think? If you were to use petty cash instead, you could take some money to the store, buy the coffee, and then bring back the change and the receipt. In a snap your problem is solved.

What it Should be Used for

Keeping a small amount of money on hand for small purchases is not only smart, but it’s also a more efficient way of conducting business. So, what should petty cash be used for?

Some examples, in addition to coffee, are postage, office supplies, and breakfast or lunch for a meeting. Clearly there are many other low dollar expenses it could be used for including reimbursement of an employee for buying something small for the office.

How to Use Petty Cash

Usually petty cash is stored in a locked box or drawer close to the front of a business. A certain amount of money is used as a start-up and kept on hand for these small buys.

Each time money is withdrawn from the petty cash fund a slip should be filled out to place in the box or drawer. The slip tells who took the money, how much was taken, and the intended purpose for the cash.

Once a purchase is made, the staff member who used the petty cash documents how much was actually spent on the slip and attaches the receipt. Any leftover change is also put back into the petty cash fund.

Periodically the bookkeeper takes the slips, receipts, and petty cash box and reconciles everything. The slips and receipts are then replaced with more cash and the purchases are documented as business expenses.

How Much Should be Kept on Hand?

The amount of money a business should keep on hand for petty cash will likely vary from business to business. The reason for this is because the needs for petty cash will vary depending on the type of business.

For example, if the business is a small office supply store it may only need around $100 at any given time. The money could be used for coffee, postage, or gas for the company vehicle.

A larger business, however, may need to keep $500 or more for petty cash. These small purchases may need to be made on a more frequent basis.

Evaluation of a petty cash fund may need to be done from time to time to ensure it is large enough. Conversely, the fund may need to be lowered if there is always a significant amount of unused cash sitting in the fund at any given time.

As you can see there are reasons businesses still need petty cash to buy items of low cost. Keeping up with your supply of coffee is but one of them.

Kayla Sloan

Kayla Sloan

Kayla is passionate about helping people get their finances in order so they can pursue a life of freedom. She quit her job to work for herself with over $148,000 of debt and swears it was the best decision she's ever made!

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