Best Practices for Petty Cash Management

"Petty cash" refers to any physical box or pouch used to hold cash. Your petty cash must be managed with care. Every discrepancy needs an explanation, and steps should be taken to prevent it from happening again.

Adjustments are possible (e.g., too much change given, a few dollars short), but they should remain rare and minor.

1. Petty cash management requirements
2. Recording petty cash transactions in your books
3. Checking and reconciling your petty cash balance
4. Negative petty cash balance

1. Petty cash management requirements

Best practices recommend keeping an up-to-date petty cash log.

This log should record every cash transaction, whether kept digitally or on paper.

Every cash transaction must be recorded on the day it occurs. Use two separate columns to distinguish collections from disbursements.

2. Recording petty cash transactions in your books

How often you record entries can vary depending on how the petty cash is used.

Here's an example.

My nonprofit has 2 petty cash funds — so I have two 531XXX accounts in Springly:

• Front desk petty cash (531001): for memberships
• Concession stand petty cash (531002): for weekly games with beverage & snack sales

Front desk petty cash

I track this petty cash log carefully — the amounts involved are significant and require close monitoring. I need a breakdown of membership payments by member to keep accurate per-person records.

This petty cash is also used for small purchases. I record every outgoing payment in detail so I can reference it when entering the purchase or invoice in Springly.

Cash deposit to the bank

From time to time, I deposit cash from this fund into the bank to clear it out — keeping a small float to make change. I record the deposit in Springly under Accounting > Entry → Cash Deposit/Withdrawal.

Concession stand petty cash

This petty cash is used for small sales (beverages & snacks) at events.

To keep things simple, you can do a manual count at the end of each event (e.g., Sunday after the game). You then record the revenue in your petty cash log and in Springly after the event.

Cash deposit to the bank

Just like the front desk fund, I periodically deposit cash from the concession stand fund into the bank to clear it out, always keeping a small float to make change.

Cash withdrawal from the bank

For larger events (e.g., tournaments), I may need a bigger float. In that case, I withdraw cash from the bank and record it in both the petty cash log and Springly.

3. Checking and reconciling your petty cash balance

Make sure your petty cash is properly maintained by performing regular checks.

At the close of an event, or daily, weekly, or monthly depending on your nonprofit's activity, verify the petty cash with a physical count.

Verifying the petty cash balance means reconciling:

• The theoretical balance (opening balance + collections – disbursements);
• The actual balance from a physical count.

If your petty cash log and accounting records are kept accurately, you should have:

Theoretical balance (petty cash log)
= Accounting balance in Springly
= Actual physical cash balance

If there is a discrepancy, you must:

• quickly identify the cause (e.g., cashier error, theft, etc.);
• correct it (e.g., record purchases paid from petty cash, log forgotten bank deposits or withdrawals, etc.).

If you can't find an explanation, you can post a petty cash adjustment as a journal book entry using the profit & loss accounts.

Ex. If my concession stand petty cash (531002) is $5 more than the accounting balance, I post:

Ex. If my front desk petty cash (531001) is $0.50 less than the accounting balance, I post:

4. Negative petty cash balance

A petty cash balance can never go negative. In practice, once your physical cash box is empty, there's nothing left to take out.

The petty cash balance is always a debit balance or zero.

A negative balance would mean more money has gone out than came in.

To maintain this debit balance, the petty cash account is:

• Debited for collections received from sales;
• Credited for cash disbursed for purchases or bank deposits.

Why is the petty cash balance always a debit?

• The petty cash balance increases with collections received (e.g., concession stand sales);
• It decreases with disbursements (e.g., sandwiches bought with petty cash for volunteers working the stand).

A negative balance most often points to a recording error. In some cases, however, the discrepancy may be due to theft. Daily checks allow you to catch and correct these issues right away.

To learn more: How to handle a negative petty cash balance

Conclusion

If you handle a high volume of cash payments, keep a petty cash log (a daily ledger works well) where you record:

• the opening cash balance;
• cash out;
• cash in;
• the closing balance, day by day.

This approach lets you quickly verify, at any time, the theoretical balance shown in the log, the actual cash on hand, and at the end of each month or year, the accounting balance of the petty cash account.