Petty cash is a small amount of physical cash that businesses keep on hand to cover minor, everyday expenses that are too small to justify writing a cheque or processing through the company’s regular accounting system. Common uses include buying office supplies, paying for delivery charges, or reimbursing small employee expenses.

The petty cash fund is typically managed by a custodian, who is responsible for safeguarding the cash, making disbursements, and keeping accurate records. Each time cash is taken from the fund, a receipt or voucher is filled out to document the amount, purpose, and date of the transaction.

To keep the system organized, the total of cash on hand plus receipts should always equal the original amount of the petty cash fund. When the fund runs low, it is replenished through a journal entry and a cheque issued for the amount spent.

Though small in value, petty cash requires proper controls to prevent misuse or theft. Businesses often set a limit on the fund (e.g., $100 or $200) and conduct regular audits to ensure accuracy.

In summary, petty cash provides a convenient way to handle small, immediate expenses, while still maintaining accountability and financial control within the organization.