Petty Cash Journal Entries: A Simple Guide with Examples

Petty cash journal entries follow three steps. To set up the fund, debit Petty Cash and credit Cash. To replenish it, debit the appropriate expenses or assets and credit Cash, adding Cash Over and Short for any difference. To increase the fund, debit Petty Cash and credit Cash; to decrease it, reverse that entry.

Under an imprest system, which keeps the fund at a fixed amount, routine replenishment normally leaves the Petty Cash account unchanged.

This distinction matters because transferring money into a cash box is not the same as spending it. This guide is for Intermediate Accounting students and CPA candidates, and it follows the petty cash lesson in Chapter 6 of our course. All examples and practice questions are hypothetical, and the named expenditures are assumed to be approved business costs.

Petty Cash Journal Entries at a Glance

Replenish means putting cash back in the box so the fund returns to its fixed amount.

What Is an Imprest Petty Cash Fund?

An imprest fund is a cash fund kept at a fixed, approved amount. A custodian, the employee responsible for the fund, must be able to account for that full amount. The custodian safeguards the currency, makes approved small payments, and retains signed receipts or vouchers explaining each payment.

A voucher is a signed slip that documents a payment; it is not cash. For example, a $500 fund containing $180 in currency and $320 of valid receipts is fully accounted for, but only $180 is actual cash in the box. Reimbursement turns those receipts back into cash in the box.

Someone other than the custodian should review and record the reimbursement. These responsibilities complement the broader internal controls over cash and bank accounts.

What Is the Journal Entry to Establish Petty Cash?

Willow Design creates a $500 fund by withdrawing money from its checking account and giving the currency to the custodian.

The entry transfers an asset from the bank to the petty cash fund. Total cash remains unchanged, and no expense has yet occurred. The ledger’s Petty Cash balance now represents the authorized $500 fund.

During ordinary operation, the custodian documents individual payments, but the general ledger does not record a separate entry for every petty cash payment under this system. The expenses or assets are recorded when the fund is reimbursed. Period-end recognition must still be timely.

What Is the Journal Entry to Replenish Petty Cash?

At month-end, Willow’s $500 fund contains $165 of currency and these receipts: $140 for office supplies used immediately, $90 for postage used, and $100 for local delivery services. Valid receipts total $330.

The $335 reimbursement restores currency to $500. The Petty Cash ledger account stays at $500 because the authorized fund size did not change. Debit Cash Over and Short for the unexplained shortage; investigate its cause instead of treating it as an acceptable recurring cost.

Use the proper account for each receipt. Supplies still on hand may be an asset rather than an immediate expense. Our example explicitly assumes the supplies were used, so Supplies Expense is appropriate.

What Changes When There Is an Overage?

In an independent example, a $300 fund contains $86 of currency and $220 of valid receipts. The total is $306, so the fund is $6 over. Only $214 is needed to restore the currency to $300.

The reimbursement entry debits the appropriate expense or asset accounts for $220, credits Cash Over and Short for $6, and credits Cash—Checking for $214. A shortage is a debit; an overage is a credit.

Cash Over and Short is a temporary income-statement account, generally presented as other expense for a net debit or other income for a net credit. It is closed through the period-end closing process, typically at year-end. The account does not authorize employees to use unexplained surplus cash personally.

How Do You Increase or Decrease a Petty Cash Fund?

Replenishment replaces money spent. Resizing changes the approved amount. Keep those operations separate even when management carries them out on the same day.

Assume any previous expenditures are reimbursed before the decrease. Returning unused currency to the bank reduces Petty Cash; it does not reverse an expense.

Replenishing and changing the fund on the same day

Problems can combine both steps. Go back to Willow’s month-end count: $165 of currency, $330 of receipts, and a $5 shortage. Management also raises the fund from $500 to $650 that day. The check must bring the box from $165 up to $650, so Willow writes a check for $485.

Debits total $485, and only the $150 increase touches Petty Cash. Its ledger balance becomes $650.

Where Does Petty Cash Go on the Balance Sheet?

Petty Cash is a current asset. Companies normally include it in cash and cash equivalents, so it usually doesn’t get its own line.

Only the actual money in the box counts as cash. Before Willow replenishes its fund, the box holds $165 of currency and $330 of receipts, so just $165 is really cash. That’s why period-end timing matters.

Period-End Timing and Common Mistakes

Reimburse the fund at the end of the accounting period as well as when currency runs low. Otherwise, valid expenditures can remain unrecorded and cash can be overstated. If reimbursement cannot be completed before closing, record the receipts with an adjusting entry so expenses and cash are correct at period-end.

What if the fund isn’t replenished before year-end?

At December 31, Willow’s $500 fund holds $380 of currency and $120 of receipts for office supplies used. The reimbursement won’t happen until January, so Willow records an adjusting entry.

Petty Cash now shows $380, which matches the actual cash in the box. This is the main exception to the rule that Petty Cash stays at its fixed amount.

When Willow writes the $120 check in January, it restores the fund.

Petty Cash is back to $500. Willow records no expense in January because December already has it.

Keep the cash locked, restrict access to the custodian, conduct independent surprise counts, and mark reimbursed receipts as paid so they cannot support a second reimbursement. Compare the cash and receipts with the authorized amount, not just with the custodian’s estimate.

Under the imprest system, common errors include debiting Petty Cash during routine replenishment, crediting it for each ordinary payment, treating receipts as currency, and reversing the debit-credit treatment of shortages and overages. The checking-account payment may also appear in the bank reconciliation; avoid recording the same reimbursement twice.

CPA Exam tip: Cash and cash equivalents is a named topic in the FAR section, under Area II, Select Balance Sheet Accounts, which makes up 30 to 40 percent of the section in the 2026 blueprint. Two quick checks help with petty cash problems. The reimbursement equals the authorized amount minus the cash on hand. The shortage or overage is the difference between the authorized amount and cash plus receipts.

Key Takeaways

• To set up the fund, debit Petty Cash and credit Cash. No expense is recorded yet.
• To replenish it, debit the expenses or assets on the receipts and credit Cash.
• The reimbursement equals the authorized amount minus the cash on hand.
• A shortage is a debit to Cash Over and Short, and an overage is a credit.
• After setup, Petty Cash normally changes only when the approved fund size changes or a period-end adjustment is needed.

Practice Questions and Explanations

1. Compute a reimbursement

A $400 fund has $95 cash and $300 receipts. What amount replenishes it, and is there a shortage?

2. Record an overage

A $250 fund has $72 cash and $180 receipts. What is the Cash Over and Short entry?

3. Identify a fund increase

After replenishment, management increases an authorized fund from $350 to $450. What is the entry?

Want more practice? Subscribers can continue with the Petty Cash lesson in Intermediate Accounting or Financial Accounting. Preparing for FAR? Keep practicing in the CPA test bank.

Frequently Asked Questions

Is establishing petty cash an expense?

No. It moves money between cash locations. The later purchases determine which expenses or assets are recorded.

Why does Petty Cash stay constant during replenishment?

Its balance tracks the authorized imprest amount. Replenishment restores that amount rather than changing it.

Does every shortage prove theft?

No. Incorrect change, missing documentation, and errors can cause differences. Each unexplained amount nevertheless requires investigation.

What is the journal entry to replenish petty cash?

Debit each expense or asset shown on the receipts and credit Cash for the amount needed to restore the fund. Debit Cash Over and Short for a shortage, or credit it for an overage. The Petty Cash account normally doesn’t change.

Do you make a journal entry for every petty cash payment?

No. Under the imprest system, the custodian keeps the receipts, and the expenses are recorded when the fund is replenished or at period-end.

Is petty cash a debit or a credit?

Petty Cash is an asset, so its normal balance is a debit. You debit it to set up or increase the fund, and you credit it to decrease the fund or to record unreimbursed receipts at period-end.

Where does petty cash go on the balance sheet?

Petty cash is a current asset and is normally included in cash and cash equivalents. Only the actual money in the box counts. Receipts in the box are not cash.

Why do some websites credit Petty Cash for each expense?

They are describing a fluctuating fund system. Each payment debits an expense and credits Petty Cash, and a refill debits Petty Cash and credits Cash. Total expenses and cash end up the same. Use the imprest entries on class and exam problems unless the question says otherwise.

By Professor Mansour Farhat, DBA, CPA, CIA. Professor Farhat is a veteran accounting educator and the founder of Farhat Lectures and its YouTube channel. He holds a Doctor of Business Administration from Temple University and a Master of Accountancy from Bloomsburg University. The examples on this page are original teaching examples. Last reviewed: November 2026.

Sources and Further Study

Cornell University’s petty cash procedures provide a practical example of custody, documentation, reconciliation, and surprise counts. Its dollar limits are institution-specific; they are not universal accounting thresholds. The embedded Farhat Lectures lesson walks through the full petty cash cycle.

IRS Publication 583 (Rev. December 2024) recommends making out a petty cash slip for each payment and attaching it to the receipt as proof of payment. For exam scope, see the AICPA Uniform CPA Examination Blueprints, effective January 1, 2026.