Recording Petty Cash Transactions

Recording petty cash transactions is one of the basic bookkeeping tasks you will need to master as a new small business owner.

A Definition

Petty cash is a small cash reserve which is used for making small cash purchases. In my experience the average petty cash balance is around $200 and the cash is kept in a locked cash tin on the business premises.

How to Record Your Petty Cash Transactions

Before we start download and print a copy of this petty cash form.

Your first decision is the amount of cash you want to keep in reserve for small cash transactions. The amount will vary from business to business, as some small business have a larger quantity of small purchases than others. I suggest you start with $200 and see how it goes.

Your first entry on the form will be to recognize the creation of the petty cash reserve. Enter the date of the transaction and write 'Opening balance' in the paid to whom column. Leave the expense account blank and enter the amount in both the deposit and balance columns. (By now, you will also have physically put the cash into your cash tin!)

What To Do When You Buy Something

Whenever you use any of the cash from your petty cash reserve, you need to record the transaction on the petty cash form.

To do that enter the date of the transaction and a descriptor for the transaction, either the name of the firm you made the purchase from or a description of what you bought. In the expense account column write in the expense account that you want the transaction coded to in your bookkeeping system. If you are not sure which account to use, check out your chart of accounts to select the appropriate account.

Then you write the transaction amount in the amount of expense column. In the balance column you keep a running total of cash balance. For an expense transaction (when you buy something using some of the cash), you deduct the expense amount from the balance in the line above.

What To Do When You Need to Top Up Your Petty Cash

So what do you do when you have used up all or most of your petty cash reserve?

You need to top it up. You do this by physically topping up the cash in your petty cash tin and recording the deposit on your form.

Need an Example?

In the graphic below you will find an example of a petty cash record for a fictitious company.

What's Next?

Now that you know all about recording petty cash transactions, you might like to check out some other basic bookkeeping tasks.

• Recording your expenses,
• Recording your sales,
• Managing your asset records,
• Doing a Bank Reconciliation,
• Tracking your customers accounts, and
• Tracking your creditor accounts.

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