What’s Petty Cash and Why You Do NOT Need It…

Petty cash like another ‘cash account’ that is created so that a business can conveniently spend on items that they need. For example, buying stamps and the like.

However, nowadays when many small transactions (even stamps) can be placed on a debit card that links directly to your bank account, I’d question the need for a petty cash account.

Why? Because Petty Cash can easily be subject to theft and involves more administration cost, especially when a lot of the small items can just as easily be bought on a debit card. Petty cash has been around during the era of ‘cheques’ and when writing and signing a cheque was the common thing (and a time consuming thing compared to petty cash), but now with bank transfers and cards, there’s no real need to have a petty cash fund.

Here’s what I mean.

To do Petty Cash now a days:

  • Set up a petty cash account
  • Transfer money from bank to petty cash fund
  • Keep track of cash spending and make sure you have the right invoices
  • Reconcile at the end of the period

Compared to this:

  • Spend using the debit card linked to your account (has a pin/sign – more security than cash) and keep invoices.
  • Reconcile.

Without petty cash, it’s much simpler and looks more secure.

I’ve heard of an instance where petty cash of $50 has gone missing and it’s very difficult to track the flow of this, whereas with a card, you know where it’s been spent and likely by whom.

Next: Accounting for an Overpayment - The debit and credit flows including GST that happen for an overpayment

Sign up to post comments

Have A Question?

Get in touch!