Petty Cash Definition, How to Manage Petty Cash

Petty Cash Definition in Accounting

Petty Cash Definition in Accounting

What is petty cash, and what are the benefits of maintaining petty cash in business? In simple words, petty cash is that small amount of cash of a company or organization which is kept in hand by the company to pay small expenses. There are many types of expenses during the day of any company, which are paid by the company every day. Petty cash is the amount that is kept aside by the company to pay the daily expenses in the galley or drawer. This is a part of the cash that is kept aside by the company for daily expenses.

Understanding petty cash

Any company must keep small amounts out for small payments. When the production or any other work of a company or firm is going on, then there are many types of expenses in the day of the company which include direct expenses and indirect expenses. Often a small part of cash is kept aside by companies so that small expenses can be paid for. Some part of the cash is kept aside by the company for daily expenses, this is known as petty cash.

The advantage of keeping small cash aside is also that the company does not need to deduct the check again and again and there is no risk of money being stolen. Companies keep out part of the cash between 5000/- to 15000 in the form of petty cash. I will show you some small expenses related to the petty cash in the list below.

1. per day full cost

2. tea or snacks

3. small pay

4. water bill

5. courier charges

6. pay small bills

7. Stationery expenses

petty cash journal entry in Tally

Petty cash is the asset of the company, the balance is transferred daily by the company from the first cash in hand to the ledger of petty cash. And later the expenses for daily expenses are paid through petty cash. To enter petty cash in tally accounting, first, you have to create petty cash voucher in tally. After creating the voucher, the accountant has to create a ledger of petty cash in tally, which has to be added to the cash in hand group.

At the time of entering petty cash, the accountant has to debit the expenses and make payments from petty cash. Petty cash is a ledger designed to pay daily expenses. Petty cash is part of a small amount, but when the company is accounted for, the details of petty cash are also recorded.

Difference between cash in hand and petty cash

Generally, people take the meaning of cash in hand and petty cash as the same but they are different. Petty cash is a small part of the cash for small payments of a company. But cash in hand is the bulk of the assets. The cash in hand can be lakhs of rupees or even more. cash in hand is a liquid asset of a company, it is not possible to use petty cash for large payments but cash is the amount by which large payments can be made.

Advantage of petty cash

There are many benefits of petty cash for any company or organization. By keeping small cash out, companies do not have to make checks again and again. Having small cash also gives the advantage that you do not have to go to the bank again and again to withdraw money. This reduces the risk of theft and makes small payments easier.

The disadvantage of petty cash

This is the benefit of maintaining petty cash, but when it is maintained by the company, it also takes time to calculate it. Earlier it is maintained more but now petty cash is maintained in very little space. There is also a problem in this that big payments cannot be made through this. There is also one thing that when a bill is paid from the bank, then it is fully known, but it becomes very difficult to handle the record when paying through petty cash.

But due to some drawbacks, its benefits are more. That is why even today in many places small expenses are being paid through petty cash. In big companies where there are more employees and workers, maintaining it at that place brings many benefits.

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