Petty cash fund for startups: Do you need one?

Startups regularly face small, unpredictable costs, from emergency office supplies to last-minute travel reimbursements. Without cash on hand, teams stall waiting for accounts payable or credit card approval, slowing the pace of day-to-day work. 

Many founders debate whether to maintain a petty cash fund, or rely entirely on virtual cards and expense-management platforms. Petty cash offers speed and simplicity but requires manual tracking, while digital payments deliver automation and audit trails at the cost of agility.

In this guide, we unpack what a petty cash fund is, how the imprest system keeps spending predictable, and when to tap cash versus digital tools. You’ll learn step-by-step setup, voucher-based disbursement workflows, replenishment cycles, and the controls that safeguard your float—all to help you manage small expenses without derailing growth.

Why do startup founders need a petty cash fund?

A petty cash fund gives founders instant access to real cash, keeping teams fast and flexible when dealing with everyday expenses. Instead of routing every $10 charge through a credit card or expense system, startups can cover things like parking or last-minute snacks for a pitch meeting without waiting for approval. 

A cash fund like this cuts busywork, avoids unnecessary tickets, and helps small teams stay focused. Withdrawal logs show clear visibility into spending and no surprises in the books.

When small costs keep popping up, a simple, well-controlled system is key. That’s where the petty cash fund—and the imprest method—comes in.

What is a petty cash fund?

A petty cash fund is a fixed cash reserve a company sets aside to cover low-cost, incidental business expenses. Instead of processing every small purchase through your formal accounts payable process, a petty cash fund allows for quick, local payments that keep the business moving.

Startups typically manage the fund using the imprest system, which sets a fixed float amount and requires every dollar spent to be tracked and replenished in a controlled cycle.

How the imprest system works

The imprest system maintains a stable petty cash balance and keeps all spending traceable. You begin by choosing a float—usually between $100 and $500—and funding it from your business checking account.

That float stays fixed. Each disbursement reduces the balance, and once funds are low (or at a set interval), the custodian submits a replenishment request. Accounting then restores the original float via journal entry:

• Debit: Expense accounts (e.g., office supplies, travel)
• Credit: Business checking account

For more on recordkeeping requirements related to petty cash, see the IRS’s Publication 583: Starting a Business and Keeping Records.

Who manages the fund: The role of the petty cash custodian

Every petty cash fund needs a designated custodian. This person is responsible for:

• Storing the cash securely
• Issuing funds based on approved vouchers
• Collecting and attaching original receipts
• Maintaining a log that tracks every transaction

This role is critical for internal control. It ensures the float is used responsibly and the fund can be reconciled easily at any time.

When and how to replenish the float

When the balance dips below a set threshold or at month-end, the custodian steps in. They total vouchers and remaining cash on hand, calculate the amount needed to restore the float, and submit a replenishment request. 

Accounting then records a journal entry to debit expense accounts and credit the checking account, replenishing the petty cash account to its original balance. We’ll also cover the full replenishment process later in this guide.

Benefits of the imprest method

Overall, the imprest method prevents petty cash from becoming a mystery line on the balance sheet. By keeping the float fixed and tying every dollar spent to a voucher and receipt, you gain full visibility into your micro-expenses.

Regular resets simplify reconciliation. Accurate logs make audits painless. And for founders who want financial agility without sacrificing control, it strikes the right balance between trust and verification.

6 components of a well-run petty cash fund

If you’re setting up petty cash for your startup, these six pieces create a simple, transparent system you can trust—from the moment cash leaves the drawer to the day it’s replenished.

1. Lock down your storage

Start by putting your float in a sturdy, lockable cash box or a drawer with restricted access. Give the key to just one person: your petty cash custodian. Limiting access keeps the fund secure and helps you stay confident the balance hasn’t moved between transactions.

2. Pair vouchers with receipts

Every time someone takes cash, they should fill out a pre-numbered voucher with the date, amount, payee, and business purpose. Then they attach the original receipt. This one-two punch is your audit trail—nothing leaves the float without a paper trail. No receipt? No payout.

3. Log every transaction

Make it a habit to record each disbursement in a petty cash log. Your custodian logs the voucher number, date, payee, and amount every time cash changes hands. Then review the log regularly to spot anything off before it becomes a bigger issue.

4. Set clear spending limits

Define a per-transaction cap in your policy (e.g., $50). That way, no one can use petty cash for large or unapproved purchases. Consistent limits keep things predictable and stop the float from draining too fast.

We know this manual process adds up. Rho can capture receipts on the fly, track petty cash disbursements automatically, and sync everything into your books, so you spend less time reconciling and more time running your business.

5. Split responsibilities

One person—your custodian—should handle the cash and log every transaction. But approval? That should come from someone else. Having a second person sign off on each voucher and review the log before replenishment gives you a simple system of checks and balances.

6. Reconcile often

Finally, don’t wait for problems to pile up. Reconcile your log with the cash on hand regularly—especially before each replenishment. When everything matches up, you know your petty cash is running smoothly. If not, you catch issues early and can adjust right away.

When should startups maintain a petty cash fund?

A petty cash fund makes sense whenever small, unexpected outlays threaten to slow down operations. Startups benefit from keeping cash on hand for routine expenditures that digital methods cannot settle instantly.

Purchasing low-cost office supplies

When a team needs items such as pens, printer paper, or snacks, reaching for the petty cash fund avoids submitting purchase orders. Having cash on hand for office supplies under a set limit keeps workstations stocked without the delay of formal procurement.

Covering employee travel expenses

Reimbursing staff for parking, taxi fares, or train tickets involves small amounts that strain cards or expense platforms. A petty cash float lets startups settle travel expenses on the spot and reduces the backlog of reimbursement requests in accounts payable.

Handling event change funds

Organizing company events or client meet-ups requires changing funds for ticketed parking, cash-only vendors, or raffles. A dedicated petty cash fund ensures startups have the right denominations available, preventing awkward pauses when making change.

Managing emergency expenditures

Unexpected costs, such as replacing a broken lock or restocking first-aid kits, constitute urgent expenditures. With a petty cash fund, founders resolve these issues instantly rather than waiting for approvals or bank transfers.

By integrating a petty cash fund into the expense policy, startups gain operational agility. Regularly reviewing petty cash transactions highlights recurring expenditures and optimizes float size. When office supplies, travel expenses, event change funds, or emergency expenditures pop up, founders can rely on cash to keep the business moving.

How do I set up a petty cash fund step by step?

To set up a petty cash fund for your startup, start by estimating your float amount. Then write a simple policy, secure a lockable storage option, fund the float from your checking account, record the opening journal entry, set up a petty cash log, and define a replenishment schedule. Let’s walk through these steps in detail.

1. Determine your float size

First, review recent expenses to find a weekly average for small purchases. Set a float amount that covers one to two weeks without tying up excess cash. This keeps approvals light and operations nimble.

2. Write a petty cash policy

Spell out per-transaction limits, what expenses qualify, and who approves disbursements. Include the custodian role and logging steps to keep everyone aligned.

3. Secure and fund the float

Pick a secure, lockable storage spot, such as a cash box in a restricted drawer, and limit access to the custodian. Withdraw the float amount from your checking account and deposit it in the box.

4. Record the opening journal entry

Log the move by debiting your petty cash account and crediting your checking account. This keeps financials clean and traceable.

5. Set up your log and replenishment process

Lastly, remember to use a basic log to track each voucher with date, purpose, amount, and receipt. Choose when to replenish, either when cash dips below a set threshold or at a regular interval, to keep the system running smoothly.

How are disbursements and reimbursements managed with petty cash vouchers?

Disbursements and reimbursement flow through a standardized petty cash voucher process that ties every cash outlay to approved documentation and posts costs to the correct expense accounts.

Voucher completion

1. The petty cash custodian issues a pre-printed petty cash voucher for each cash disbursement.
2. The voucher captures payee's name, date, business purpose, and dollar amount.
3. The employee attaches original petty cash receipts before returning the voucher to the custodian.

Supervisor approval

• Each petty cash voucher and receipt pair undergoes supervisor review.
• Approved vouchers authorize disbursements from the cash drawer.
• This dual-sign-off prevents unauthorized spending and ensures all reimbursements follow company policy.

Employee reimbursement

• When staff advance their own funds, they submit a petty cash voucher with receipts for reimbursement.
• The custodian verifies the petty cash receipts against the voucher, then issues cash from the float.
• This method streamlines small reimbursements without burdening accounts payable.

Recording in expense accounts

• At replenishment intervals, the custodian totals all disbursements and vouchers.
• Accounting posts a journal entry that debits the relevant expense accounts and credits the checking account.
• This entry resets the petty cash balance to its original float, with each line item tied to specific expense accounts for accurate cost tracking.

Audit trail and reconciliation

• The petty cash log records every petty cash voucher number, date, and disbursement.
• Matching the log to petty cash receipts confirms that the cash on hand matches documented outlays.
• Regular audits of the cash drawer and vouchers catch discrepancies early, reinforcing control over small-ticket disbursements.

By enforcing a clear process, from voucher completion and reimbursement to journal entries in expense accounts, startups maintain transparency and control over every petty cash transaction.

How do you replenish a petty cash fund and record journal entries?

Replenishing the petty cash fund is a multi-step process that restores the float to its original amount and ensures all disbursements are properly documented in your books. This process involves verifying expenses, withdrawing new cash, and posting a journal entry that keeps your general ledger accurate.

Here’s how it works—from tallying receipts to filing your records:

Tallying vouchers and receipts

The custodian gathers every petty cash voucher and matches each to the original petty cash receipts. Counting the remaining cash on hand in the cash box confirms total petty cash disbursements. Comparing this figure to the petty cash log highlights any variances before replenishment.

Calculating the top-up amount

Subtracting the counted cash on hand from the original float reveals total petty cash expenses. This calculation ensures the replenishment amount precisely covers all petty cash disbursements and restores the float without overfunding.

Withdrawing funds to restore the float

The custodian withdraws the replenishment amount from the checking account. Placing new funds into the cash drawer brings the petty cash balance back to its set level, ready for the next cycle of small-ticket spending.

Posting the journal entry

Accounting records a journal entry that debits specific expense accounts for the total petty cash expenses and credits the checking account for the replenishment amount. This step aligns the general ledger with outflows and updates financial statements.

Filing replenishment documentation

Finally, the custodian assembles the replenishment voucher, supporting petty cash receipts, and journal entry in one file. Storing this packet alongside the petty cash log enables periodic audits and reinforces control over small-ticket expenditures.

What internal controls could help prevent petty cash shortages?

Strong internal controls keep your petty cash fund reliable, transparent, and easy to reconcile. These checks and balances help catch issues early—before small oversights turn into reporting problems.

Here’s what you can conduct routinely:

Conduct unannounced spot audits

Schedule surprise cash counts to verify the amount on hand matches the petty cash log. Spot checks catch small discrepancies before they snowball and show the team that controls are active—not just theoretical.

Require dual approval on replenishments

As we mentioned earlier, have the custodian prepare the replenishment request and a separate manager or finance lead approve it. This split responsibility ensures that no one person can refill the float without oversight.

Assign independent reconciliations

Put someone outside the custodian role in charge of verifying the log against the cash drawer at regular intervals. Independent review creates a clean audit trail and reinforces trust in the system.

Enforce voucher and receipt matching

Make it a policy that every cash disbursement must be backed by a completed voucher and an original receipt. Any missing documentation should be flagged and resolved before the fund is replenished.

Log and report any variances

When reconciliations reveal differences between the cash drawer and recorded transactions, create a variance report. Log the dollar amount, suspected cause, and resolution steps. Regular review of variance trends helps strengthen policy over time.

Rotate petty cash custodians periodically

Periodically rotating the petty cash custodian prevents long-term manipulation of the float. A fresh custodian starts with a verified float and accurate log, making it harder to hide discrepancies or engineer a future shortage.

How does petty cash compare to digital payment solutions?

Petty cash provides instant cash on hand for micro-spending, while digital payments depend on credit cards and accounts payable workflows for traceability and automation.

Speed and convenience

Petty cash bypasses the need to submit expense reports or wait for credit card approval. Founders grab cash from the cash box to settle urgent purchases in seconds. In contrast, digital payments require routing through accounts payable or logging into cash management software before funds are available.

Traceability and auditability

Digital payments feed automatically into cash management platforms, offering real-time dashboards and detailed transaction histories. Every credit card charge appears in expense reports and accounts payable modules without manual entry. Petty cash relies on a custodian’s log of petty cash transactions and receipts, making reconciliation more hands-on.

Fraud risk and controls

Credit card networks include built-in fraud protection and dispute resolution. A stolen credit card can be cancelled instantly. Petty cash demands strict internal controls to mitigate theft or loss. The custodian must enforce voucher policies and reconcile petty cash receipts against the float to prevent a shortage.

Reconciliation workload

Reconciliation of digital payments means reviewing synced entries in cash management and accounts payable systems. Petty cash reconciliation involves matching each petty cash receipt to a voucher in the petty cash log, counting the cash drawer, and preparing replenishment. This manual process can be time-intensive, but keeps small expenses off the general ledger until the refill.

Cost trade-offs

Using credit cards incurs processing fees and cash management subscription costs, while petty cash eliminates those but requires staff time for the replenishment cycle and journal entry. Startups weigh the overhead of accounts payable against the hands-on effort needed to maintain a petty cash fund.

Here’s a quick summary of how they’re different:

How do founders decide between petty cash and digital expense tools?

Founders usually weigh transaction size, urgency, auditability, cost, and scalability when choosing between petty cash expenses and digital payments. 

For immediate, low-ticket needs like office snacks or parking, petty cash disbursements clear in seconds and avoid accounts payable delays. A small float handles petty cash expenses instantly, and employee reimbursements under set limits stay outside complex workflows.

When spending rises above the float threshold or occurs regularly, virtual cards and expense platforms shine. Automated expense reports feed directly into accounting software, simplifying updates to financial statements. Digital tools reduce manual reconciliation work and enforce strong audit trails for employee reimbursements.

• Low-value outlays: Use petty cash expenses for ad-hoc small purchases and petty cash disbursements under the policy cap.
• High-volume claims: Route employee reimbursements through platforms to batch and categorize charges.
• Audit and reporting: Sync digital payments with cash management and accounts payable to keep financial statements clean.
• Scalability: Virtual cards grow with the team, while petty cash disbursements remain fixed at the float size.

This blended approach balances on-the-spot agility with clear, scalable financial controls.

Experience Rho expense management

We built Rho for founders who need crystal-clear control over every outlay—whether petty cash disbursements, credit card charges, or employee reimbursements. Capture receipts on the fly, log petty cash expenses instantly, and feed everything directly into your bookkeeping and financial statements.

Our platform brings expense workflows and accounts payable into one real-time dashboard so you always see how today’s spending shapes tomorrow’s runway.

Ready to centralize petty cash custodian tasks, automate reimbursements, and reclaim hours spent reconciling? Get started with Rho Expense Management and keep your startup agile without losing control.

FAQ: Petty Cash funds for Startups

What is the difference between petty cash and cash on hand?

Petty cash is a designated fund for small business expenses, managed under strict policies. Cash on hand refers to any available physical currency a business holds, including but not limited to petty cash.

Can a petty cash fund be used for payroll?

No. Petty cash is intended for minor, incidental expenses. Payroll must be processed through formal wage payment systems to meet tax and reporting requirements.

Who audits petty cash funds?

Internal audits are typically performed by someone outside of the petty cash custodian role, such as finance staff or an external accountant, to maintain checks and balances.

How often should petty cash be reconciled?

Reconcile petty cash at least monthly or whenever a replenishment is triggered. Frequent audits help spot discrepancies and maintain internal control.

Is petty cash an asset or an expense?

Petty cash is recorded as a current asset on the balance sheet. Individual disbursements become expenses once they’re logged and replenished through journal entries.

‍