--- title: "Petty Cash: How to Set Up and Reconcile a Fund | MCC" description: "Set the float, require receipts, replenish and record shortages. Worked example with a $200 fund, plus the controls that prevent leaks." url: "https://mcc-solutionsnj.com/bookkeeping/guides/petty-cash-fund-setup-and-rules" --- Bookkeeping guide · Updated October 12, 2026 # Petty Cash: How to Set Up and Control a Fund Petty cash covers small, unexpected costs paid in cash, such as postage, parking or a last-minute supply run. Because cash is easy to lose or misuse, a fund needs a little structure even when the amounts are small. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** Many businesses do not need petty cash, since a business debit or company card leaves a better trail. If you keep a fund, make it small and for a stated purpose, so a lost box or a mistake is not a big event. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Void vs delete a transaction](/bookkeeping/guides/voiding-vs-deleting-transactions) · [NJ 1099 contractor rule (ABC test)](/bookkeeping/guides/nj-independent-contractor-rule-abc-test-2026) · [Trial balance explained](/bookkeeping/guides/trial-balance-explained) **Free tools:** [Depreciation schedule calculator](/bookkeeping/depreciation-calculator) · [Was that craft fair worth it?](/bookkeeping/craft-fair-profit-calculator) [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## Decide if you need one Many businesses have no need for petty cash. A business debit card or company card leaves a better trail. If you do keep a fund, make it small and keep it for a purpose, so a lost box or a mistake is not a big event. Choose an amount that covers a few weeks of small purchases. If you replenish it daily, the fund is too small or cash is being used when it should not be. ## Setting it up Write one check from the bank to cash for the fund amount, cash it, and put the money in a locked box. In the books, move the amount from the bank to a petty cash asset account. The fund is now a separate small balance. Name one person as custodian. Only that person has the key, and they are responsible for the full amount at all times. ## Vouchers and receipts Every time money leaves the box, a slip goes in. The slip shows the date, amount, purpose, who received it and the signature. Attach the receipt. At any time, the cash in the box plus the slips should equal the fund amount. No receipt means no reimbursement, except for rare cases that the owner approves and notes. Do not let people borrow from the fund, even for a day. ## Replenishing and recording When cash runs low, total the slips by category. Write a check for the exact total spent and bring the cash back to the full amount. Only now are the expenses entered in the books, in the right categories, with the check as the payment. The petty cash asset account stays the same except when you change the fund size. If you see the balance in your books move often, entries are being made incorrectly. ## Surprise counts and closing the fund Count the box on a random day each quarter, ideally by someone other than the custodian. Any difference, over or short, is recorded to an over and short expense account and explained. If the fund is no longer used, deposit the cash back in the bank and close the asset account. Keep the voucher records with your other files for the standard retention period. ## Digital alternatives worth considering If the fund is only used for tiny purchases, a prepaid card or a dedicated debit card with a low balance may serve better. It produces a statement automatically, avoids handling cash and can be topped up from the bank when needed. The bookkeeping is the same as any bank account, with each transaction coded to a category and a receipt attached. For businesses with employees running errands, this is often simpler to supervise than a cash box. ## Worked example with numbers You fund petty cash with a $200 check, recorded as debit petty cash $200 and credit checking $200. At month end the box holds $64 in cash and receipts for postage $41, snacks $37 and parking $50, totaling $128. Cash plus receipts is $64 + $128 = $192, so $8 is missing. To replenish back to $200, write a check for $136, which is $128 of receipts plus the $8 shortage. Record debit postage $41, meals $37, parking $50, cash over/short $8, and credit checking $136. The fund is back at $200 and the shortage is visible instead of buried. ## Mistakes that cost money Allowing withdrawals with no receipt turns the fund into a slush account. Letting the same person hold, spend and record the cash removes any check. Letting the float creep up each time makes the fund large enough to be a control problem. Lending from the box to staff or the owner mixes personal and business. Never counting it means shortages are found months later. ## Check your work Count the fund on a set day each month with someone else watching if possible. Cash plus receipts should equal the fixed float every time. ## Common questions **How much should a petty cash fund be?** Whatever covers a few weeks of genuine small purchases. Keep it small enough that a loss is not damaging. **Can the owner take money from petty cash?** Treat it as a draw and record it as such. Mixing owner use with business spending clouds the books. **Is petty cash still needed with debit cards?** Often not. Cards give automatic records, though some vendors or tips still call for cash. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [### QuickBooks Online Monthly bookkeeping, cleanup and reconciliation in QuickBooks Online for New Jersey small businesses. Your account stays in your name. QuickBooks →](/bookkeeping/software/quickbooks-online)[### Zoho Books Bookkeeping and reconciliation in Zoho Books for New Jersey businesses, especially those already using other Zoho apps. 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