Petty cash: what it is, how it works and how to manage it

Petty cash is a small amount of cash a business keeps on hand for minor purchases, like milk, postage or parking, that aren’t worth a card payment or a purchase order. Most businesses run it as an imprest float: you start with a fixed amount, record each purchase on a voucher with its receipt, and top the float back up by the total spent. In your accounts, petty cash is a current asset.

This guide explains how a petty cash float works, how to set one up, how much to keep, how to reconcile it, the records the ATO expects, and how to record petty cash in Xero or MYOB. It also covers the point where petty cash stops being the easy option.

How petty cash works (the imprest system)

Petty cash runs on a simple cycle, usually called the imprest system. “Imprest” just means the float is a fixed amount that gets topped back up to the same level each time.

1. Set the float. The business withdraws a fixed amount, say $300, and puts one person in charge of it. That person is the petty cash custodian.
2. Spend and record. Each time someone takes cash, they fill in a petty cash voucher with the date, the amount, what it was for and who took it. They hand back the receipt and any change.
3. Count and reconcile. At a set interval, the custodian counts the cash and adds up the vouchers. Cash plus vouchers should equal the float.
4. Top up. The business tops the cash back up to the float amount, so the next period starts at $300 again.

Because the float always returns to the same amount, a shortfall shows up the next time someone counts. That is the main control the imprest system gives you. You’ll also see petty cash called a cash float, a petty cash fund or an imprest fund. They all describe the same arrangement.

How to set up a petty cash fund

Setting up petty cash properly takes an afternoon. Skipping the set-up is what makes it hard to manage later.

1. Decide the float amount. See the next section for how to size it.
2. Appoint one custodian and a backup. One person hands out cash, collects vouchers and does the count. The backup covers leave.
3. Write a short petty cash policy. What it covers is listed below.
4. Set up vouchers and a log. Every withdrawal gets a numbered voucher, and the custodian keeps a running log, often called a petty cash book.
5. Store the cash securely. Use a locked cash box kept in a locked drawer or safe, with the key held by the custodian.
6. Set a reconciliation schedule. Pick a fixed day, such as the last business day of each month.
7. Create a petty cash account in your accounting software. This is covered in the Xero and MYOB section below.

How much petty cash should a business keep?

There is no ATO rule or standard amount. A practical approach is to size the float to cover two to four weeks of typical small purchases:

• Add up three months of petty cash vouchers, or small cash purchases from your bank statements.
• Divide by 13 to get an average week.
• Multiply by the number of weeks you want between top-ups.

If the float keeps running out early, it is either too small or being used for purchases that should go through another channel, such as a supplier account or a purchase order.

What a petty cash policy should cover

A one-page policy prevents most petty cash arguments. It should cover:

• What petty cash can be used for, and what it can’t, such as personal loans, wages or anything that needs a purchase order
• A maximum amount per purchase, above which staff use another payment method
• Who can take cash and who approves it
• That every withdrawal needs a voucher and a receipt
• How often the float is counted and topped up, and by whom
• What happens when the count is short or over

How to reconcile petty cash

Reconciling petty cash means checking that the cash in the tin plus the vouchers adds up to the float, then topping it back up. Here is the process:

1. Count the cash in the tin.
2. Add up the vouchers for the period.
3. Add the two together. The total should equal the float amount.
4. Investigate any difference. Look for missing vouchers, receipts without a voucher and adding errors.
5. Record any unexplained shortfall or overage. Many businesses use a “cash over and short” account for this.
6. Top up the float to its fixed amount, and record the top-up and the expenses in your accounts.
7. Sign and date the reconciliation, and file it with the vouchers and receipts.

A worked example

The vouchers are recorded as expenses, coded to the right accounts. The $5.00 goes to a cash over and short account rather than one of your normal expense accounts, with a note of what you checked. If the same float comes up short month after month, the problem isn’t the arithmetic.

If you don’t have a log yet, the free petty cash template includes a voucher log with a GST column and a reconciliation tab that works out the top-up for you.

Should petty cash be reconciled monthly?

Reconcile at least monthly, and always before the float is topped up. A busy float, or one that several people draw from, is worth counting weekly. Also reconcile at the end of each financial year and whenever the custodian changes, so each person signs off only for the period they held the cash.

Petty cash records the ATO expects

There are no petty-cash-specific ATO rules. The rules are your own policy plus the normal ATO record-keeping and GST rules, which apply to every purchase made with petty cash.

• Keep most records for five years. Most business records need to be kept for five years, in English, and you need to be able to show them to the ATO if asked (ATO record keeping for business).
• Tax invoices for purchases over $82.50. If you’re registered for GST and want to claim the GST credit on a purchase over $82.50 including GST, you need a tax invoice. For purchases of $82.50 or less, a tax invoice, cash register docket, receipt or invoice is enough (ATO: when you can claim a GST credit).
• Vouchers don’t replace receipts. A voucher records who took the cash and why. The receipt is the evidence of what was bought. Keep both.
• Keep the reconciliations. The signed reconciliation sheets are part of your records too.

This is general information, not tax advice. ATO guidance checked 15 October 2026. Check how the rules apply to your business with your accountant or the ATO.

How to record petty cash in Xero and MYOB

In Xero and MYOB, petty cash is set up like its own bank account. The general pattern is the same in both:

1. Create a petty cash account. Set it up as a bank-type asset account called Petty Cash.
2. Record the opening float as money moving from your business bank account into Petty Cash.
3. Record each purchase as a spend money transaction from the Petty Cash account, coded to the right expense account and GST rate, with the receipt attached.
4. Reconcile the Petty Cash account against the cash you count and your vouchers.
5. Record the top-up as money moving from your business bank account back into Petty Cash.

The exact screens differ between versions, so follow the official guides: manage petty cash in Xero and MYOB’s petty cash guide.

Petty cash journal entries

If you keep a manual ledger, the entries under the imprest method are:

• Setting up the float: debit Petty Cash, credit Bank.
• Topping up: debit each expense account for the vouchers, debit GST paid for any GST credits you can claim, and credit Bank. The Petty Cash balance stays at the float amount.
• Shortfall: debit cash over and short for the difference, as part of the top-up entry.

Under the imprest method, purchases are recorded when the float is topped up, not one by one as they happen. If your software records each purchase as it happens, as in the Xero and MYOB pattern above, those purchases credit Petty Cash instead, and the top-up is a transfer from Bank.

Is petty cash an asset?

Yes. Petty cash is cash the business owns, so it sits on the balance sheet as a current asset, usually grouped with cash and cash equivalents. The purchases paid from it become expenses when the vouchers are recorded.

Common petty cash problems

Most petty cash problems show up at the monthly count:

• The count is short and nobody can explain why.
• Receipts go missing, so purchases can’t be checked and GST credits can’t be claimed.
• Vouchers get filled in after the fact, from memory.
• The float is topped up without a reconciliation, so a shortfall rolls forward unnoticed.
• The custodian is away and someone else hands out cash without the usual records.
• Several sites each keep a float, so finance reconciles a stack of tins every month.

They usually come back to the same thing: one pool of cash, many hands, and no individual record of who spent what.

When petty cash stops working (and what replaces it)

Petty cash is fine for a single office with one custodian and a small float that balances every month. If that’s your situation, a clear policy and a regular reconciliation may be all you need.

It stops working when:

• several people, or several sites, draw from floats
• the count is regularly short and the gaps can’t be traced
• most purchases are at places that take cards anyway
• finance spends hours each month counting tins and chasing receipts

At that point, the usual fix is to replace the petty cash tin with individual cards. Each person gets their own Visa debit card with a limit, purchases are recorded as they happen, and receipts are captured at the till. You keep a small float only for the few purchases that genuinely need cash.

“With Budgetly, we now have saved time and solved a lot of the problems we had using petty cash!”

Shanna Theaker, Finance Manager, Sanctuary Family Solutions. Read the case study

Frequently asked questions