Petty cash › Rules for petty cash

Rules for petty cash

Petty cash goes wrong not because people are dishonest, but because nobody wrote down the rules. A one-page policy, read once by everyone who touches the box, prevents most problems.

A sample policy you can copy

1. One person holds the box. Name a petty cashier. Only they take cash out. When they are on leave, hand over the box with a cash count signed by both.
2. Fixed float. The box holds ₹10,000 and is topped up to that amount at month end (see the imprest system).
3. Limit per payment. Nothing above ₹2,000 is paid from petty cash without the owner's approval. Anything above ₹10,000 is never paid in cash.
4. Paper for every rupee. Each payment has a bill, ticket or slip. When there is none (auto fare, coolie), the cashier writes a payment voucher and the receiver signs it.
5. Same-day entry. Every payment is written in the petty cash book the same day, with the voucher number and account head.
6. No personal use. No loans, no change for personal purchases, no IOU slips in place of cash.
7. Staff advances are written as advances. An advance for a trip is entered under "Advance to staff" and settled with bills when the person returns.
8. Weekly surprise count. Someone other than the cashier counts the cash once a week and signs the book.
9. Month-end closing. The book is closed, cash counted, vouchers checked and the book signed by the cashier and approver.

What petty cash is for

• Tea, water and snacks for the office and visitors
• Auto, bus and local travel
• Courier, postage, photocopies
• Small stationery, cleaning material, light bulbs
• Small repairs: electrician, plumber, carpenter
• Loading, unloading and local cartage

What should not be paid from petty cash

• Salaries and wages. Pay them into the bank; it makes PF, ESI and the salary register simpler and gives a clean record.
• Supplier bills for goods you trade in. They belong in purchases, paid from the bank.
• Anything above ₹10,000 to one person in a day. The income tax law does not allow such a cash payment as a business expense (₹35,000 for transporters). See cash payment limits.
• New assets such as a printer or a mobile phone. Those are not expenses; buy them through the main books.
• Personal spending of the owner. If the owner takes cash, write it as "Drawings" in the main cash book, not in petty cash.

Keeping the cash safe

• Keep the box locked, and the key with the cashier only.
• Do not keep more cash than the float. Deposit any excess in the bank.
• Keep bills inside the box in an envelope, in date order, until month end.
• Use UPI from the business account for small payments wherever the other side accepts it. It leaves its own record and needs less cash in the box.

GST bills from petty cash

If a purchase made from petty cash has a GST bill in your business name and GSTIN, for example stationery from a registered shop, hand the bill to your accountant at month end. They can check whether input tax credit can be claimed on it. Food, refreshments and some other items are usually not eligible, so ask before you assume.