Petty cash is the small float you keep for everyday expenses such as courier charges, tea and snacks, and minor repairs. The best way to control it is the imprest system: fix a float, record every spend with a voucher, and top up only to the original amount at a set interval. This guide walks you through a simple petty cash routine for a small Indian business.
Why petty cash needs its own routine
Small amounts add up. A few hundred rupees a day, spent without a bill or a note, becomes a few thousand rupees a month that nobody can explain. Untracked cash also makes your books harder to close: the cash balance on paper no longer matches the cash in the drawer, and you lose time hunting for the difference.
A routine does not need to be heavy. It needs three things: one person responsible, one voucher for every payment, and one regular count.
Set up the imprest system
Under the imprest system, you decide a fixed float, for example an amount that covers about one or two weeks of normal small expenses. Then:
- Withdraw the float from the bank (or from the main cash balance) and record it as a transfer to petty cash.
- Appoint one custodian. Only this person handles the cash box. Keep it locked.
- Spend only against a voucher. Cash in the box plus vouchers should always equal the float.
- Reimburse on a fixed day, for example every Friday or at month-end, by the exact amount of the vouchers spent. The float returns to its original amount.
Because the float is fixed, any shortage or excess is visible straight away.
Make a voucher for every payment
A petty cash voucher is a simple slip. It should show the date, a running voucher number, the amount, the payee, the purpose, and the signature of the person who received the money and of the person who approved it. Attach the supplier's bill or receipt whenever one exists.
When no bill is available (an auto-rickshaw fare, for instance), write a short self-made voucher stating what was paid and why. Do not leave such spends unrecorded; an honest voucher is better than a gap.
Set limits and approval rules
- Fix a maximum amount per payment from petty cash. Anything larger goes through the bank or a normal payment process.
- Decide which expense heads are allowed (postage, stationery, refreshments, local conveyance, minor repairs) and which are not.
- Require a second person to approve vouchers above a small threshold.
- Never lend from petty cash or accept personal cheques for the float.
For payments to suppliers and for larger sums, cash has legal limits and tax consequences. Our guide to cash transaction limits under Section 40A(3) and Section 269ST explains why bigger payments should not go through the petty cash box.
Count the box on a schedule
Count the cash at least once a week, and always on the reimbursement day. Compare the physical cash plus the total of unreimbursed vouchers with the float. A worked example:
ItemAmount (₹) Float10,000 Vouchers since last top-up7,350 Cash counted in the box2,600 Expected cash (10,000 − 7,350)2,650 Difference (short)50A small difference like this should be recorded as a cash short/over entry, with a note, rather than adjusted silently. A repeated or growing difference is a signal to review the process or the custodian's workload.
Record it correctly in your books
At each reimbursement, pass entries that debit each expense head with the voucher totals and credit the cash or bank account that funds the top-up. Record the float itself as a balance in a separate petty cash account, so that your main cash account is not mixed up with it.
If your business is GST-registered and the bill is a valid tax invoice in your name with your GSTIN, the GST on it may be eligible for input tax credit, subject to the usual conditions. Small receipts without GST details cannot support a credit, so ask for proper bills for anything significant. Credit on some expenses, such as food and beverages for staff, can be blocked; see our article on blocked credit under Section 17(5) before you claim.
When you reconcile the month's accounts, include petty cash in your checks along with the bank. Our monthly bank reconciliation routine pairs well with a petty cash count on the same day.
Common mistakes to avoid
- Topping up the float without checking vouchers first.
- Using petty cash for personal or owner expenses without a clear entry.
- Keeping vouchers in a pile and booking them months later.
- Letting the float grow so large that it becomes a second cash account.
- Having the same person spend, approve and record.
Key takeaways
- Use a fixed float and reimburse by the exact amount of vouchers spent.
- One custodian, one locked box, one voucher for every payment.
- Count regularly and record any difference openly.
- Keep larger payments out of petty cash and ask for proper GST bills.
- Confirm tax treatment of specific expenses with your chartered accountant.
Whether you keep your records in a spreadsheet or in an accounting app such as AICOUNTLY Smart Books, the habit matters more than the tool: a fixed float, a voucher for every rupee and a regular count will keep your small cash spends clean and your month-end close quicker.
