Petty cash may appear insignificant, but it is one of the in SME accounting.Weak petty cash controls lead to leakages, GST/TDS errors, audit objections, and poor financial discipline.
This guide provides a suitable for SMEs and growing businesses.
Petty cash is used for small, day-to-day expenses such as:
- Office refreshments
- Courier charges
- Local travel
- Minor office supplies
- Emergency repairs
Because petty cash involves , it is vulnerable to:
- Misuse and pilferage
- Unsupported expenses
- Duplicate claims
- GST ITC loss due to missing invoices
- Lack of accountability
- Audit red flags
To explain how to:
- Maintain a petty cash system
- Record petty cash transactions correctly
- Implement internal controls
- Ensure GST and TDS compliance
- Reconcile petty cash balances
- Pass audit scrutiny smoothly
Petty cash is a maintained to meet minor expenses where:
- Immediate payment is required, and
- Bank/online payment is not practical
Petty cash is meant for:
- Large purchases
- Vendor payments
- Salary payments
- Advances to staff (unless approved)
A fixed amount of cash is maintained.
Example:Petty cash float = ₹10,000
At the end of the period, expenses are reimbursed to restore the float back to ₹10,000.
• Strong control• Easy reconciliation• Audit-friendly
Cash is topped up randomly without reconciling expenses.
• Weak controls• High misuse risk• Audit objections
Management should define:
- Maximum petty cash float
- Maximum amount per voucher
- Types of expenses allowed
Example:• Petty cash float: ₹10,000• Max per voucher: ₹1,000
- One responsible person
- Custodian is accountable for cash balance
- Custodian cannot approve their own expenses
Segregation of duties is critical.
Every payment must have a voucher containing:
- Date
- Amount
- Nature of expense
- Vendor name
- Supporting bill/invoice
- GST details (if applicable)
- Employee signature
- Approval signature
Maintain a petty cash register (manual or Excel).
This ensures transaction-level tracking.
At period end (weekly/monthly):
Relevant Expense A/c Dr
To Petty Cash A/c
Then reimburse:
Petty Cash A/c Dr
To Bank A/c
Petty cash balance returns to fixed float.
Cash on hand + vouchers = authorised float.
Differences must be investigated immediately.
- ITC allowed only if is available
- Petty cash slips without GSTIN → ITC not claimable
- Split GST-eligible and non-eligible expenses
- Generally not applicable due to small amounts
- If repetitive payments to same vendor exceed limits → TDS risk arises
- Watch out for professional fees, repairs, and contracts
- Fixed imprest limit
- Voucher-based payments
- Expense caps
- Approval hierarchy
- Surprise cash counts
- Periodic reconciliation
- Segregation of duties
- Restrict cash usage where UPI is available
- No vouchers
- No custodian accountability
- Excessive cash usage
- Mixing personal and business expenses
- No physical verification
- Booking petty cash as “miscellaneous”
- Claiming GST ITC without invoice
- Allowing advances without tracking
These lead to audit qualifications and control weaknesses.
Petty Cash A/c Dr
To Bank A/c
Office Expense / Travel / Courier A/c Dr
To Petty Cash A/c
Petty Cash A/c Dr
To Bank A/c
Auditors check:
- Petty cash register
- Voucher quality
- Approval controls
- Physical cash verification
- Reasonableness of expenses
- GST ITC support
- Year-end petty cash balance
Weak petty cash control is often cited as an .
High miscellaneous expenses with no vouchers.
• Introduced imprest system• Designed voucher format• Fixed approval limits• Implemented monthly reconciliation
• Reduced cash leakage• Improved audit rating• Clean GST records
• Petty Cash Voucher Format• Petty Cash Register (Excel)• Imprest Reconciliation Sheet• Petty Cash SOP• Monthly Cash Verification Checklist