Is Petty Cash An Asset? Its Treatment and Importance In A Business

Is Petty Cash An Asset

What Is Petty Cash In Accounting

Petty means small or minor and cash means money. Petty cash means the small amount that a company keeps in hand for small expenses or for urgent or incidental expenses. Many companies use petty cash to avoid issuing cheques or using business cards.

The amount of petty cash is determined by the size of the company or region in which the company operates. The followings are the most common examples of expenses that are paid using petty cash.

  • Lunch expenses of the clients or employees
  • Party expense (related to company purpose)
  • Minor Office supplies
  • Greeting cards for clients or employees
  • Tea, coffee, or snakes for clients or employees
  • Stationeries such as notebooks, pens, pencils, erasers, etc.

For running petty cash smoothly and accurately, companies follow these three steps:

  1. Appointing a custodian officer for handling petty cash
  2. Recording all petty cash transactions
  3. Reconcile the petty cash transaction and balance regularly.

Is Petty Cash An Asset

Yes, a petty cash account is an asset because it consists of cash that is a readily available economic resource that companies use to pay their day-to-day small expense. Petty cash is a short-term or current asset that is recorded in the statement of financial position.

A petty cash account has always a small amount according to the size of the business and it cannot be listed separately in the balance sheet, so it is recorded with other cash accounts in a single line.

Importance Of Maintaining Petty Cash Account

The followings are the importance of maintaining a petty cash account in a business.

What is petty cash
Is Petty Cash An Asset
  • Cash will be always available for small expenses
  • Maintaining a petty cash account helps a business in managing small expenses effectively
  • Small purchases can be made easily on behalf of a company by employees
  • It helps to manage incidental expenses
  • A petty cash account helps a business to improve the efficiency of its operations by making important small purchases without waiting for approval for minor expenses, etc.


Is petty cash a current asset?

Yes, a petty cash account is a current asset because it is a readily available economic resource that a company can use instantly.

Describe petty cash in a single.

Petty cash is an account in a business that is used for paying minor expenses.

How petty cash is recorded in the accounting records?

Petty cash is recorded in the balance sheet as an asset and when it is spent it is recorded in the income statement with an expense entry or account.

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