# Petty cash: how to set up and track a petty cash fund > https://rundoo.ai/resources/guides/petty-cash-for-retail-stores/ [Guides](/resources/guides/index.md) /Product Product # Petty cash: how to set up and track a petty cash fund Petty cash is a small, fixed fund kept apart from the register for minor expenses, and it stays honest when every payout gets a slip and the box is topped back up to the same amount, which this guide walks through with a worked example. [![Titus Capilnean](https://pub-5247264bd04e4ebeaecbbedb3bebb9f8.r2.dev/static/images/articles/titus-capilnean.jpeg)](https://www.linkedin.com/in/tituscapilnean/) [Titus Capilnean](https://www.linkedin.com/in/tituscapilnean/), Head of Marketing October 27, 2026 Last updated October 27, 2026 **This is not tax advice.** It is a general guide for store owners, drawn from the public sources it cites, and rules change and vary by state. Before you change how you price, tax, or bill, talk to a certified professional: a CPA or tax advisor who knows your state. ## What is petty cash? Petty cash is a small, fixed amount of cash you keep apart from the register to pay for minor business expenses, things like postage, a tip for the delivery driver, or a padlock you grab at another store because yours ran out. Every payment gets a paper slip with the receipt stapled to it, and when the fund runs low you top it back up to the same fixed amount, a system bookkeepers call the imprest method. The IRS describes it about as plainly as anyone in [Publication 583](https://www.irs.gov/publications/p583): "A petty cash fund allows you to make small payments without having to write checks for small amounts." That is the whole idea, since nobody wants to cut a check for a $9.99 padlock or wait three days for a signature to buy coffee for the contractor station, and a small box of cash run with a little discipline handles all of it. It helps to be clear on what the box is not. Register cash belongs to the drawer, and the drawer gets counted and reconciled every night. Petty cash lives outside that count, in its own box, with its own person responsible for it. Keeping the two apart is what lets your end-of-day numbers stay clean while still giving you a way to pay for the small stuff that comes up between purchase orders. ## What petty cash is for (and what it isn't) A good rule of thumb: petty cash covers small, occasional spending that would be silly to run through your normal purchasing process. If it costs less than your cap and waiting would slow someone down, the box earns its keep. | Petty cash is for | Petty cash is not for | | --- | --- | | Postage and shipping small items | Inventory purchases from vendors (those go through purchase orders) | | A tip for a delivery driver | Payroll or wage advances | | A quick part from another store when yours is out | Owner draws | | Coffee and creamer for the contractor station | Mileage reimbursements without the usual paperwork | | Small cleaning and maintenance supplies | Anything over your per-payout cap | | A COD charge on a delivery | Loaning cash to anyone, for any reason | One category trips up a lot of store owners: items pulled from your own shelves for store use. A gallon of paint for the break room wall or a handful of shop towels off the shelf is not a petty cash expense, because no cash left the building. Those items come out of inventory, and depending on your state you may owe use tax on them. We wrote a separate guide on [use tax on store-use items](/resources/guides/use-tax-on-store-use-items/index.md) if that one sounds familiar. ## How to set up a petty cash fund Most of the setup is deciding on your rules, in this order. **Pick the fund amount.** Size it to cover about two to four weeks of small spending. For a single store that is often a modest amount, such as $150. Too small and you're replenishing every week; too big and you have more loose cash sitting around than you need. **Name one custodian.** One person, and only one person, holds the key and hands out the cash. That's usually you, a manager, or your bookkeeper. The moment two people can open the box, nobody is responsible for it, and the slips will start drifting apart from the cash. **Get a locked box and a pad of slips.** The box lives somewhere apart from the registers, ideally in the office, and it stays locked. Keep blank slips and a pen in or next to it so there's no excuse for "I'll write the slip later." **Fund it.** Write a check for $150 payable to cash (or to the custodian), cash it, and put the bills in the box. On the books, that's a debit to a petty cash account and a credit to your checking account. If you haven't set up a petty cash account in your chart of accounts yet, our guide to the [general ledger and chart of accounts for retail](/resources/guides/general-ledger-and-chart-of-accounts-for-retail/index.md) walks through how to structure one. **Set your rules in writing.** A dollar cap per payout (anything over, say, $50 goes through a purchase order or a check), no IOUs, no personal loans, and a receipt required for every payment. A short note taped inside the lid of the box works fine. ## The slip is the whole system Petty cash works or fails on one habit: no cash leaves the box without a slip. Publication 583 says that for each payment "you should make out a petty cash slip and attach it to your receipt as proof of payment," and that staple is doing more work than it looks like. The slip is what turns a shrinking pile of bills into a set of expenses your bookkeeper can record. Each slip needs five things: * **Date** of the payment * **Amount** handed out * **Who** received the cash * **What it was for**, in plain words ("coffee for the contractor station," not "supplies") * **Expense account** it should post to (postage, break room supplies, cleaning, and so on) Staple the receipt to the slip and drop both back in the box. If there's no receipt, which happens with tips and the odd parking meter, the slip still gets written, and the person who took the cash signs it. Two more IRS points worth knowing. First, supporting documents like sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks should be kept in an orderly fashion and in a safe place, which is bookkeeping language for "not loose in a shoebox." Second, proof of payment alone doesn't establish a deduction. You also need documents showing the cost was incurred, which is exactly what that stapled receipt gives you. Keep the slips after you replenish, because your accountant will want them come tax time. ## How to replenish petty cash Here is the beauty of the imprest method: at any moment, the cash in the box plus the slips in the box should equal your fixed fund amount. If the fund is $150, you should always be able to account for $150, whether it's sitting there as bills or as paper. When the cash gets low, or at the end of the month, whichever comes first, you replenish. The steps: 1. Count the cash left in the box. 2. Total the slips, grouped by expense category. 3. Confirm that cash plus slips equals the fund amount. If it doesn't, find out why before going further. 4. Write a check or withdraw cash for the total of the slips, cash it, and put the money in the box. The box is back to $150. 5. Record one journal entry debiting each expense account for its share and crediting cash or your bank account for the total. Notice what didn't happen: you never touched the petty cash account itself. It stays at $150 on your books month after month. It only changes if you decide to raise or lower the fund. ### A worked example from a store week Say your fund is $150 and the box produced these slips over a week: | What the slip says | Amount | Expense account | | --- | --- | --- | | Coffee and creamer for the contractor coffee station | $23.40 | Break room supplies | | Postage to mail back a returned part | $18.00 | Postage | | Window washer for the storefront | $42.50 | Cleaning/maintenance | | Padlock bought at another store (yours was out of stock) | $9.99 | Repairs | | **Total** | **$93.89** | | You count the cash and find $56.11. Cash plus slips comes to $56.11 + $93.89 = $150, so the box balances and nobody has to go hunting for a missing five. You write a check for $93.89, cash it, refill the box, and record one entry: debit break room supplies $23.40, postage $18.00, cleaning $42.50, and repairs $9.99, credit checking $93.89. Done, and the fund is ready for next week. ## Petty cash vs a paid-out from the register Plenty of small stores skip the box entirely and pay for small stuff straight out of the till. That's called a paid-out, and it can work, but it has to be handled differently than a sale. A paid-out comes out of the drawer and must show up on your drawer closeout as a paid-out, with a receipt or note explaining it, or your count for the day will be short and you'll burn an evening figuring out why. If you're not already running a formal closeout, our guide to the [end-of-day cash drawer closeout](/resources/guides/end-of-day-cash-drawer-closeout/index.md) covers how paid-outs should appear in it. Petty cash, by contrast, is a separate box with its own custodian, and it never touches the drawer at all. The tradeoff is simple: the till is convenient but it muddies your drawer count and invites exactly the kind of informal grabbing that makes counts come up short, while the box takes one extra step and keeps the register sacred. Pick one method and stick to it, because running both, sometimes from the drawer and sometimes from the box, is how a $20 disappears twice. ## Controls that keep the box honest Petty cash is the only fund in the store allowed to live up to its name, but even small money deserves controls, because small money leaves quietly. None of this is heavy machinery: * **One custodian, one key.** Shared custody is no custody at all. * **Keep the box locked** and away from the sales floor. * **Cap each payout.** Over your cap, it goes through a purchase order or a check, which is where bigger spending belongs anyway. * **Do surprise counts.** Every so often, count the box without warning. Cash plus slips should equal the fund amount, and the custodian should know you'll check. The same counting discipline that protects your inventory protects your cash; our guide to [retail shrink in hardware and feed stores](/resources/guides/retail-shrink-hardware-and-feed-stores/index.md) shows how much of loss prevention comes down to consistent counting. * **No IOUs, no loans, no exceptions.** An IOU is an expense with no receipt and no category, and it has a way of becoming permanent. The box is not a bank, not for staff, not for you. * **No wages or mileage from the box.** Paying employees or reimbursing mileage without the usual paperwork creates payroll and tax problems that cost far more than the cash involved. Run those through your normal process. Get these habits in place and petty cash becomes what it's supposed to be: a boring little system that buys the coffee, mails the part, and never once shows up as a mystery in your books. Share Topics [Product](/resources/guides/index.md#running-the-store) [← All guides](/resources/guides/index.md) ## Frequently asked questions What is petty cash? Petty cash is a small, fixed amount of cash kept apart from the register to pay for minor business expenses such as postage, a delivery tip, or a part bought at another store. Each payment gets a slip with the receipt attached, and the fund is topped back up to the same fixed amount when it runs low, which is called the imprest method. How do you replenish petty cash? Count the cash left in the box, total the slips by expense category, and confirm that cash plus slips equals the fund amount. Then write a check or withdraw cash for the total of the slips, put it in the box to bring it back to the fixed amount, and record one entry that debits each expense account and credits your bank account. How much should a business keep in petty cash? Enough to cover roughly two to four weeks of small expenses without constant top-ups, which for a single small store is often a modest amount such as $150. Pair the fund with a per-payout cap, so anything larger goes through a purchase order or a check instead of the box. What is the difference between petty cash and a paid-out? A paid-out comes out of the register drawer and has to appear on that day's drawer closeout, while petty cash is a separate locked box with its own custodian that never touches the drawer. Either can work, but picking one method and sticking to it keeps the drawer count clean. Do I need receipts for petty cash? Yes. IRS Publication 583 says to make out a petty cash slip for each payment and attach it to the receipt as proof of payment, and it notes that proof of payment alone does not establish a deduction, so keep documents showing what the cost was for. When there is no receipt, such as a tip, write the slip anyway and have the person who took the cash sign it. ## Find out what Rundoo can do for your business Learn how Rundoo can help you save time, money and hassle running your business. 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