Petty cash management for small businesses

Why petty cash goes wrong

In most small businesses petty cash is the least controlled money. Amounts are small, so nobody checks. Over a year, though, ₹500 a day of unexplained spending is over ₹1,50,000 — and the same loose habits often spread to bigger cash.

Typical problems:

• Petty cash mixed with sales cash in the same drawer.
• No slips, or slips written days later from memory.
• The same person spending, recording and topping up.
• Personal expenses of the owner or staff paid from the box and never recorded.
• Large payments (₹10,000 to a contractor) made from petty cash to avoid approval.

The imprest system: a fixed float

The simplest reliable method is the imprest system. You decide a fixed float — say ₹10,000 for a branch — and the custodian always holds either cash or bills adding up to exactly that amount.

At any surprise check, cash plus bills must equal ₹10,000. A shortfall is visible at once.

Setting the float and limits

• Float size: roughly one to two weeks of normal small spending. Too large invites misuse; too small means daily top-ups.
• Single-payment limit: for example, nothing above ₹2,000 from petty cash. Larger payments go through the bank or the accounts head.
• What petty cash is for: list it — courier, tea and refreshments, local conveyance, minor repairs, small stationery, loading and unloading.
• What it is not for: salaries or advances, supplier payments, the owner's personal spending, anything regular enough to be paid monthly.

These limits sit inside your wider expense approval rules.

A sample petty cash voucher

Use a printed pad or a simple format like this. Every payment, even ₹50, gets one.

Where no bill is possible — an auto fare, a tip to a loader — the receiver's signature on the voucher becomes the proof.

Recording petty cash in Tally

Create a separate cash ledger, such as Petty Cash – Main Branch, under Cash-in-Hand. This keeps it apart from the sales counter cash.

1. Funding the float: a contra voucher from bank or main cash to Petty Cash for ₹10,000.
2. Expenses: payment vouchers from Petty Cash to the right expense ledgers — courier, conveyance, repairs. Enter weekly from the slips, or daily if volume is high.
3. Top-up: another contra for the total of the bills, ₹4,670 in the example.

The Petty Cash ledger balance in Tally should then always equal the cash physically in the box. If GST bills are received for eligible expenses, enter them as purchase or expense vouchers with tax so input credit is not lost — ask your accountant which ones qualify.

Weekly and surprise checks

• Weekly: custodian totals slips, accountant checks them against the cash left, enters vouchers, and releases the top-up.
• Monthly: review petty cash spending by head. If conveyance keeps growing, ask why.
• Surprise count: once a month or so, the owner or accounts head counts the box without warning. Cash plus slips must equal the float.
• Different people: the person who spends should not be the one who tops up. This is one of the cheapest internal controls you can put in place.

For multi-location businesses, give each branch its own float and ledger; see managing multiple branches.

Petty cash with Tally and Cashflow OS

Cashflow OS shows the cash book and every cash ledger synced from Tally, so the owner can check the petty cash balance of each branch from the phone. When writing back to Tally is switched on, an accountant can enter payment and contra vouchers from the phone or web app; Tally validates each entry. Team roles keep salespeople out of the accounts. See create vouchers from your phone.