Bookkeeping · Foundations · Brief · Intro level
Petty cash: the imprest system in five steps
The imprest method fixes the petty cash fund at one amount; receipts plus remaining cash must always equal it. Here are the five steps and the replenishment entry that records the expenses.
Petty cash done right runs on the imprest method: the fund is fixed at one amount, every dollar out is swapped for a receipt, and cash plus receipts always totals the fixed amount. The elegance is in the bookkeeping: the Petty cash account is touched only when the fund is created or resized. Day-to-day spending is recorded all at once, at replenishment.
The five steps
- Establish the fund. Cash a check for a fixed amount — 200 covers most small offices — into a locked box with one named custodian.
| Account | Debit | Credit |
|---|---|---|
| Petty cash | 200 | |
| Cash — checking | 200 |
The only routine entry that touches Petty cash. It now sits at 200 indefinitely.
-
Disburse against vouchers. No cash leaves without a receipt or signed voucher stating date, amount, purpose, and who took it. The box always holds 200 in some mix of cash and paper.
-
Reconcile. Before replenishing (and monthly regardless): count the cash, total the receipts, confirm the two sum to 200. Investigate gaps immediately, while memories are fresh.
-
Replenish to the fixed amount. Write a check for exactly the receipts total. This check's entry is where the expenses finally hit the books:
| Account | Debit | Credit |
|---|---|---|
| Postage expense | 38 | |
| Office supplies expense | 92 | |
| Mileage reimbursement expense | 34 | |
| Cash — checking | 164 |
Petty cash is not in the entry. The fund returns to 200: 36 cash on hand plus the 164 check.
- File the vouchers with the replenishment. Staple receipts to a copy of the check record. That bundle is the audit trail — adequate records of even small expenses are part of the standard in Publication 583.
When it doesn't balance
Count shows 32 but receipts say there should be 36? Replenish anyway, and let a Cash over and short account absorb the difference:
| Account | Debit | Credit |
|---|---|---|
| Postage expense | 38 | |
| Office supplies expense | 92 | |
| Mileage reimbursement expense | 34 | |
| Cash over and short | 4 | |
| Cash — checking | 168 |
The fund returns to exactly 200. A chronically growing over-and-short balance is a controls problem, not a rounding problem.
Resize the fund the same way it was born: debit Petty cash to enlarge, credit to shrink, against checking. And if the balance in your ledger's Petty cash account is drifting month to month, someone is posting replenishments to it — reread step four, and see what a journal entry should look like before the next one.
What to do next
- Name one custodian and fix the amount in writing.
- Count the box today; reconcile cash plus receipts to the fixed amount.
- Replenish with a proper expense-split entry — and never through the Petty cash account.
Frequently asked questions
- What is an imprest petty cash system?
- An imprest system fixes the petty cash fund at a set amount, say 200. Every disbursement is documented with a voucher or receipt, so cash on hand plus receipts always totals 200. Replenishment restores the fund to exactly the fixed amount, and the replenishment check's entry records the expenses.
- What is the journal entry to replenish petty cash?
- Debit each expense represented by the receipts — postage, supplies, mileage — and credit Cash for the replenishment check. The Petty cash account itself is not touched; it stays at the fixed fund amount. Petty cash is only debited or credited when the fund is created, resized, or closed.
- What if petty cash doesn't reconcile to the receipts?
- Book the difference to a Cash over and short expense account when replenishing, so the fund still returns to its fixed amount. Small occasional differences are normal; a pattern of shortages means tightening custody — one custodian, locked box, receipts required before cash leaves.