What is Petty Cash?
Petty cash is a small amount of cash kept on hand for minor business expenses. Learn how to manage it, track it, and when invoicing is the better option for your freelance business.
What Is Petty Cash?
Petty cash is a small amount of cash — typically $50 to $200 — that businesses keep on hand to pay for minor, day-to-day expenses that are too small or inconvenient to pay by check or credit card. The word "petty" comes from the French "petit," meaning small. Despite its humble name, petty cash serves an important function: it keeps your business running smoothly for the small stuff without creating administrative overhead for every minor purchase. Examples of petty cash uses: - Office supplies from a local convenience store - Postage stamps for mailed contracts - Small tips for delivery personnel - Parking meter fees for client meetings - Cash register shortfalls (for retail) For freelancers, petty cash is often less relevant than it is for businesses with employees. But if you have a virtual assistant, part-time contractor, or small team, petty cash can simplify reimbursements for small expenses.
How Petty Cash Works
Setting Up a Petty Cash Fund 1. Decide on an amount — $50-$200 is typical for small businesses. It should be enough to cover your smallest, most frequent expenses without frequent replenishments. 2. Cash the check — Write a check from your business account and cash it at your bank. 3. Designate a custodian — One person is responsible for the fund. This is often you, the business owner. 4. Create a petty cash log — A simple spreadsheet or paper form tracking every withdrawal. Replenishing Petty Cash When the fund runs low, the custodian collects all receipts for money spent, verifies them against the log, and submits a reimbursement request. A check is written to replenish the fund back to its original amount. Example: You start with $100. After a month, receipts total $87. You get reimbursed $87, bringing the fund back to $100. The Accounting: Debits and Credits When you set up petty cash: - Debit Petty Cash (asset) $100 - Credit Cash (asset) $100 When you replenish: - Debit various expense accounts ($87 in total) - Credit Cash (asset) $87
Petty Cash vs. Invoicing
Invoicing and petty cash serve completely different purposes. Invoicing is for getting paid by clients — it's income. Petty cash is for spending money on behalf of your business — it's an expense. The two only overlap when a client reimburses you for a petty cash expense. In that case: 1. You paid $15 for parking on a client site (petty cash) 2. You invoice the client for the $15 as a pass-through expense 3. The client pays you $15, and you replenish your petty cash
Common Petty Cash Mistakes
- Mixing personal and business cash — Never use petty cash for personal purchases, even "just this once" - Skipping receipts — Every withdrawal needs documentation, or you'll lose track - Letting it get too large — More cash on hand means more risk. Keep it small. - Not replenishing regularly — Letting receipts pile up for months creates accounting headaches
The Bottom Line
Petty cash is a simple but necessary tool for managing small business expenses. For freelancers, the best practice is to minimize petty cash use — run most purchases through a business credit card for automatic tracking. But for the occasional cash-only purchase, a small, well-managed petty cash fund keeps things running smoothly. (Track all expenses in one place →) (Learn about business expenses →) (Manage reimbursements properly →) Key Takeaways: 1. Petty cash is a small fund ($50-$200) for minor business purchases 2. Track every withdrawal with receipts and a running balance 3. Replenish when low, matching receipts to the reimbursement amount 4. Keep it separate from personal cash and your business bank account 5. For freelancers, a business credit card is often better than petty cash for most expenses Keep every expense tracked automatically — Try Eonebill Free Eonebill connects to your bank account and automatically categorizes every business expense — no petty cash log required. View Pricing → | Glossary Home → | Home →