Petty cash refers to small amounts of cash kept on hand in a business. (The term "petty" comes from "petite," or "small.") There are two reasons to keep petty cash:
- To make change for customers or patients
- To pay for small purchases which require cash, such as food for the office lunch or coffee supplies, or for parking. Most retail businesses keep a cash drawer as do health care practices.
Every purchase using petty cash must be documented in the same way as other business income and expenses. Using a petty cash log or petty cash slips will help capture these expenses so they can be used to offset income for business tax purposes.
Keep as much cash as you need in your cash drawer, but not too much, so it isn't a temptation for employees or robbers.
For more information, read "How to Set Up and Maintain a Petty Cash Account."