Every office has a drawer of small cash for everyday spending. Left unrecorded, that drawer becomes a black hole: nobody knows where ₹3,000 went last month, and the main cash book gets cluttered with ₹40 chai entries. The classical fix — still the best one — is a petty cash book run on the imprest system.
What is a petty cash book?
A petty cash book is a subsidiary book maintained by a junior staff member (the petty cashier) to record small, frequent payments — conveyance, postage and courier, tea and refreshments, minor stationery, small repairs. The main cashier is freed from tiny entries, and the chief cash book stays clean: it records only the lump sums handed to the petty cashier.
The imprest system in one minute
"Imprest" simply means a fixed float. It works like this:
- Management fixes a float — say ₹5,000 — enough for roughly one period's (week's or month's) petty expenses.
- The petty cashier spends from the float and keeps a voucher for every payment.
- At the end of the period, the petty cashier presents the vouchers — say totalling ₹4,240.
- The main cashier reimburses exactly the amount spent (₹4,240), restoring the float to ₹5,000.
The elegance is self-checking: at any moment, cash in the box + vouchers = ₹5,000. If the two do not add up, something is wrong — and you know the same day, not at year-end.
The analytical (columnar) petty cash book
The most useful format adds analysis columns so each payment is classified as it is recorded. A simplified week for a small trading firm:
| Date | Particulars | Total (₹) | Conveyance | Postage/Courier | Stationery | Refreshments | Misc. |
|---|---|---|---|---|---|---|---|
| 1 Jul | Auto to bank | 120 | 120 | ||||
| 2 Jul | Courier to Delhi | 380 | 380 | ||||
| 3 Jul | Printer paper | 640 | 640 | ||||
| 4 Jul | Tea for client meeting | 250 | 250 | ||||
| 5 Jul | Key duplication | 150 | 150 | ||||
| Total | 1,540 | 120 | 380 | 640 | 250 | 150 |
At period end, each column total is posted once to its ledger account — five postings instead of dozens. See ledger posting for how the totals flow into the accounts.
The journal entries
1. Creating the float (first time):
- Petty Cash A/c Dr. ₹5,000 → To Cash/Bank A/c ₹5,000
2. Recording the period's expenses (from the column totals):
- Conveyance A/c Dr. ₹120
- Postage & Courier A/c Dr. ₹380
- Printing & Stationery A/c Dr. ₹640
- Office Refreshments A/c Dr. ₹250
- Miscellaneous Expenses A/c Dr. ₹150
- To Petty Cash A/c ₹1,540
3. Reimbursing the float:
- Petty Cash A/c Dr. ₹1,540 → To Cash/Bank A/c ₹1,540
The Petty Cash account then stands at ₹5,000 again. If entries 2 and 3 feel unfamiliar, our journal entries tutorial walks through the debit-credit logic step by step.
Controls that keep petty cash honest
- Voucher for every rupee. A numbered petty cash voucher, signed by the spender and approved by a supervisor, backs each payment. Attach the bill (auto receipt, courier slip) wherever one exists.
- Set a per-payment ceiling. For example, nothing above ₹2,000 through petty cash — larger payments go through the main cash book or bank with proper approval.
- Surprise counts. The owner or accountant counts the box unannounced once a month; cash plus vouchers must equal the float.
- One custodian. Exactly one person holds the box. Shared drawers are where shortages are born.
- No IOUs, no personal loans, no cheque encashment from petty cash — ever.
- Reimburse by cheque/UPI, not cash-to-cash, so the top-up itself leaves a bank trail.
How big should the float be?
Track actual petty spending for a month, add a 20% cushion, and round. If your shop spends ₹4,000–4,500 a month on small items, a ₹5,000 monthly float (or ₹1,500 weekly) is right. Too large a float invites casual spending; too small means constant top-ups. Review the size twice a year. And remember the income-tax angle: cash expenses have deduction limits under the Income-tax Act, so route anything sizeable through the bank — check the current cash-payment thresholds on incometax.gov.in.
Petty cash in the digital age
UPI has shrunk petty cash but not killed it — the auto driver, the roadside repair, the market porter still want cash. A modern hybrid works well: keep a small imprest box for true cash-only payments, pay everything else by UPI from a dedicated business account, and record both in your books under the same expense heads. In iAccounting, you can maintain Petty Cash as a separate cash ledger, enter the week's vouchers in minutes (or tell the AI accountant "petty cash: auto ₹120, courier ₹380, paper ₹640"), and the column analysis, ledger postings and trial balance update themselves.
Takeaway
Fix a float, demand a voucher for every payment, reimburse exactly what was spent, and post the column totals each period. That is the whole imprest system — a 150-year-old control that still stops small money from leaking out of small businesses.