How petty cash works
A fixed amount, often $100 to $500, is withdrawn from the bank and kept in a locked box, with one person responsible for it. Each time cash is used, the person takes a receipt and records the amount, purpose and date in a simple log, so the box always equals cash on hand plus receipts.
When the fund runs low, the receipts are totaled, coded to the appropriate expense accounts, and the fund is replenished back to its fixed amount with a check or transfer from the bank. Any unexplained shortage between the log and the actual cash count is written off as a small cash-over-short expense. Some businesses set a policy requiring receipts for every disbursement over a small threshold and periodic surprise counts by someone other than the fund custodian, since petty cash is one of the easiest accounts to lose track of without basic controls.
Example
A small office keeps a $200 petty cash fund. Over the month, $45 is spent on postage, $30 on office supplies and $15 on coffee for a client meeting, with receipts totaling $90. The bookkeeper replenishes the fund with a $90 check, coded $45 to postage, $30 to office supplies and $15 to client entertainment, bringing the fund back to $200. If the physical count comes up $5 short of what the log supports, that $5 is written off to a cash-over-short expense account rather than left unexplained on the books.
Petty cash in QuickBooks Online vs Xero
In QuickBooks Online, petty cash is set up as a bank-type account so each disbursement and replenishment can be entered as a normal transaction and reconciled like any other account. Xero handles it the same way through a cash account, and both platforms let you attach a photo of each receipt to the transaction for the record.
Related terms
How LedgerBPO handles petty cash
We set up a petty cash account in your system, reconcile it against the receipt log each month, and code every disbursement to the right expense account when the fund is replenished. This keeps small cash spending visible in your reporting instead of disappearing into a single unexplained lump sum.