Understanding Petty Cash Management

This guide explains Petty Cash—what it is, how to manage it properly, and how the system keeps your small expenses organized and accounted for. Written for everyone (even if accounting makes your head spin!), it covers setting up funds, tracking vouchers, and keeping everything balanced.

What is Petty Cash?

Imagine you need to buy coffee for an important client meeting or pay for parking when delivering documents. You can't use a company credit card every time, and you definitely can't wait days for approval on a $5 expense.

That's where Petty Cash comes in—it's like having a small cash allowance at your fingertips for those tiny, urgent expenses.

In business terms: Petty Cash is a small amount of physical money kept on hand to cover minor day-to-day expenses that are too small or urgent to write a check or process through accounts payable.

The Key Players:

The Custodian: A trusted employee (like an office manager) who physically holds and manages the cash.
The Fund: A fixed amount of money (like $500) that's established and needs to stay constant.
Vouchers: Little receipts that document every single penny spent from the fund.

Why track it so carefully? Because cash is easy to lose track of! The system ensures every cent is accounted for, preventing both accidental losses and intentional misuse.

How It Works in Kezi ERP

Our system turns old-school petty cash management into a digital, trackable process—no more shoebox full of receipts!

1. The Setup: Creating a Petty Cash Fund

Think of this as setting up your cash drawer. You decide:

Who's in charge? (The Custodian)
How much money? (The Imprest Amount—let's say $500)
Where does it come from? (Which bank account)

Example: "Main Office Fund" managed by Sarah, with $500 taken from our operating bank account.

Where to find this: Accounting → Petty Cash → Funds

The Imprest System: The Golden Rule

Here's the magic: The fund should always contain $500 in total (cash + receipts).

Let's say you start with $500 cash:

Day 1: Spend $20 on taxi fare → Now you have $480 cash + $20 receipt = Still $500 total
Day 2: Spend $35 on office supplies → Now you have $445 cash + $55 receipts = Still $500 total
Day 5: Spend $100 on client lunch → Now you have $345 cash + $155 receipts = Still $500 total

When the cash gets low (maybe $345 is too little), you replenish it by depositing exactly $155 back in, bringing it back to $500 cash!

The Workflow: Real-Life Example

Let's follow a typical day with petty cash.

Scenario: Office Supplies Emergency 🖊️

It's Monday morning. The printer runs out of toner, and you need it for a presentation in 2 hours. Sarah (the custodian) grabs $45 from the petty cash drawer and runs to the store.

Step 1: The Purchase

Sarah buys toner for $45 and gets a receipt.

Step 2: Creating a Voucher 📝

Sarah logs into the system and creates a petty cash voucher:

Amount: $45
Description: "Emergency toner cartridge for HP printer"
Expense Account: Office Supplies
Receipt Reference: Receipt #12345
Date: Today

Status: Draft

The voucher is saved but nothing happens to the accounting yet.

Step 3: Posting the Voucher ✅

Sarah's manager reviews and approves the voucher. When they click "Post":

The system automatically:

Deducts $45 from the Petty Cash Fund balance
Records an expense in Office Supplies
Creates a journal entry linking everything to the General Ledger
Locks the voucher (can't be changed anymore—that's the whole point of an immutable system!)

What Sarah sees:

Fund balance drops from $500 → $455
The voucher shows "Posted" status
She can print it if needed for the files

After a week, Sarah has used $200 from petty cash (lots of small expenses). The drawer only has $300 left, and she's nervous about running out.

The Replenishment Process

Step 1: Check the Balance

Sarah checks the system:

Imprest Amount: $500 (the goal)
Current Balance: $300
Needed: $200

Step 2: Create Replenishment 💰

Sarah creates a replenishment:

Amount: $200 (system calculates this automatically!)
Payment Method: Bank Transfer
Date: Today
Reference: Bank transfer #TRX-98765

Step 3: The Money Movement

The accountant approves it, and:

$200 leaves the bank account
$200 is added to the petty cash fund
Both transactions are recorded in the GL

Result:

Fund balance: $300 → $500 ✅
Sarah can breathe easy again
The fund is back to full strength

Visualizing the Petty Cash Cycle

    ┌─────────────────────────────────┐
    │   START: Fund Created           │
    │   Cash: $500                    │
    └──────────────┬──────────────────┘
                   │
                   ▼
    ┌─────────────────────────────────┐
    │   Daily Expenses (Vouchers)     │
    │   Cash: $500 → $450 → $380 ...  │
    └──────────────┬──────────────────┘
                   │
                   ▼
    ┌─────────────────────────────────┐
    │   Balance Getting Low!          │
    │   Cash: $300 (need more!)       │
    └──────────────┬──────────────────┘
                   │
                   ▼
    ┌─────────────────────────────────┐
    │   Replenishment                 │
    │   Cash: $300 + $200 = $500      │
    └──────────────┬──────────────────┘
                   │
                   └──────┐
                          │
    ┌─────────────────────▼───────────┐
    │   REPEAT THE CYCLE!             │
    └─────────────────────────────────┘

Best Practices

1. Set a Low Balance Threshold

Configure your fund to show a warning when cash drops below, say, $100. This gives you time to arrange a replenishment before running out.

In the system: When creating a fund, you can set "Low Balance Threshold" to $100.

2. Always Get Receipts

No receipt = No voucher = No money back!

The custodian should be trained: "If there's no receipt, it comes out of your pocket."

3. Post Vouchers Promptly

Don't wait until month-end to enter 50 vouchers. Enter them the same day or week while the memory is fresh.

4. Regular Surprise Counts

Once a month, randomly count the physical cash + receipts. They should equal the system balance. This prevents errors and keeps everyone honest.

5. Close Inactive Funds

If a fund hasn't been used in 6 months (maybe a branch office closed), mark it as "Closed" to prevent confusion.

Security & Controls

Who Can Do What?

Role	Create Fund	Create Voucher	Post Voucher	Replenish
Custodian	❌	✅	❌	❌
Manager	❌	✅	✅	❌
Accountant	✅	✅	✅	✅
CFO	✅	✅	✅	✅

Why separate duties? The person holding the cash shouldn't be the one approving their own expenses. This separation prevents fraud.

Audit Trail

Every action is logged:

Who created the voucher?
When was it posted?
Who approved the replenishment?

The system creates an immutable record—once posted, you can't go back and change history. If there's a mistake, you create a new correcting entry.

Common Scenarios & Solutions

Scenario 1: Lost Receipt 😱

Problem: Sarah lost the receipt for a $15 taxi fare.

Solution:

Sarah writes a memo explaining what happened
Her manager approves it as an exception
The voucher includes "No receipt - approved exception" in notes
This should be rare—make it uncomfortable so people don't lose receipts

Scenario 2: Fund Running Negative

Problem: Someone spent$25 when only $20 was left in the fund.

Solution: The system won't let you post a voucher that exceeds the current balance! You'll get an error: "Insufficient petty cash balance."

You must:

Replenish the fund first
Then post the voucher

Scenario 3: Multiple Funds

Problem: You have 3 branch offices, each needs its own petty cash.

Solution: Create 3 separate funds:

"Head Office Fund" - Sarah's responsibility
"North Branch Fund" - Ahmed's responsibility
"South Branch Fund" - Layla's responsibility

Each fund is completely independent with its own balance, custodian, and tracking.

Scenario 4: Wrong Expense Account

Problem: Sarah posted a voucher to "Office Supplies" but it should have been "Transportation".

Solution in immutable system: You cannot edit a posted voucher. Instead:

Create a journal entry to reclassify the expense
Add notes referencing the original voucher number
Train staff to double-check before posting

Troubleshooting Common Questions

Q: Why can't I edit a posted voucher? A: Because it's already recorded in the General Ledger! Changing it would break the audit trail. Think of it like signing a legal document—once signed, you can't erase your signature.

Q: Can I use petty cash for a $500 expense? A: Technically yes, but you probably shouldn't. Petty cash is for small, urgent purchases. Large expenses should go through the normal accounts payable process for better tracking and approval.

Q: What if the custodian quits? A:

Do a physical count of the cash
Create a replenishment if needed to get back to $500
Change the custodian name in the fund settings
Hand over the cash box to the new custodian

Q: How often should I replenish? A: There's no fixed rule, but generally:

High activity fund: Weekly
Low activity fund: Monthly
Emergency: Whenever balance drops below your threshold

Q: Can I have a fund in USD and another in IQD? A: Absolutely! Each fund has its own currency. Just make sure you're not mixing currencies in the same physical cash box!

Chart of Accounts - Setting up expense accounts
Journal Entries - Understanding the GL impact
Financial Periods - Lock dates and periods

Quick Reference Card

Creating a New Fund:

Accounting → Petty Cash → Funds → Create
Set name, custodian, amount, accounts
Save and transfer money to the custodian

Recording an Expense:

Accounting → Petty Cash → Vouchers → Create
Select fund, amount, expense account
Add description and receipt reference
Save (Draft)
Get approval and Post

Replenishing:

Accounting → Petty Cash → Replenishments → Create
Select fund (amount auto-calculates!)
Enter payment method and reference
Save and process

Pro Tip: The system shows you the fund balance in red when it's below your threshold—that's your signal to replenish!

#What is Petty Cash?

#How It Works in Kezi ERP

#1. The Setup: Creating a Petty Cash Fund

#The Imprest System: The Golden Rule

#The Workflow: Real-Life Example

#Scenario: Office Supplies Emergency 🖊️

#Step 1: The Purchase

#Step 2: Creating a Voucher 📝

#Step 3: Posting the Voucher ✅

#Fund Replenishment: Refilling the Cookie Jar 🍪

#The Replenishment Process

#Step 1: Check the Balance

#Step 2: Create Replenishment 💰

#Step 3: The Money Movement

#Visualizing the Petty Cash Cycle

#Best Practices

#1. Set a Low Balance Threshold

#2. Always Get Receipts

#3. Post Vouchers Promptly

#4. Regular Surprise Counts

#5. Close Inactive Funds

#Security & Controls

#Who Can Do What?

#Audit Trail

#Common Scenarios & Solutions

#Scenario 1: Lost Receipt 😱

#Scenario 2: Fund Running Negative

#Scenario 3: Multiple Funds

#Scenario 4: Wrong Expense Account

#Troubleshooting Common Questions

#Related Documentation

#Quick Reference Card