A petty cash receipt is the internal slip a business fills out every time cash leaves its small-cash fund, and it exists so that minor spending stays visible in the accounting system and defensible if the IRS asks. Most companies keep a fixed fund of $100 to $500, and every withdrawal gets its own receipt before a single dollar leaves the box. The form is simple. The habits around it are what keep the fund clean.
What to Write on the Slip
Pre-printed receipt books from an office supply store work. So do internal templates. Either way, the same fields have to be there:
- Date. The calendar date the cash was handed over, not the date of the purchase if those differ.
- Recipient name. The full name of the person receiving the money.
- Dollar amount. The exact sum, down to the cent. Small rounding errors compound across dozens of transactions and throw off the fund balance.
- Business purpose. Specific, not generic. “Office supplies” is too vague. “Replacement ink cartridge for front-desk printer” gives the reviewer what they need.
- Account or department code. The general ledger account or department the expense should hit, so the bookkeeper categorizes it correctly.
- Authorization signature. The custodian or supervisor approving the disbursement.
Fill in every field before asking for approval. Blanks that get completed later are where most errors creep in, because details fade fast once the money is spent and the slip is tossed in a drawer.
Attach the External Receipt
The internal slip does not prove what the money was actually spent on. You need external evidence attached: the store receipt, vendor invoice, or register tape from the purchase itself. IRS Publication 583 lists petty cash slips for small cash payments as supporting documents for business expenses and makes clear that proof of payment alone does not establish a deduction without further documentation showing the cost was actually incurred.1Internal Revenue Service. Publication 583 – Starting a Business and Keeping Records
For some expense categories the bar is higher. Travel expenses, gifts, and listed property require records showing amount, time, place, business purpose, and business relationship of the person receiving the benefit. The IRS will not accept estimates for these categories regardless of dollar amount.2Office of the Law Revision Counsel. 26 U.S. Code 274 – Disallowance of Certain Entertainment, Etc., Expenses Treasury guidance also requires documentary evidence for any expense of $75 or more, except transportation charges where documentation is not readily available.3Internal Revenue Service. Revenue Ruling 2003-106
Even for routine purchases outside those strict-substantiation categories, keeping the external receipt is the safest practice. If the IRS examines your return and you cannot produce supporting documents, the deduction for that expense can be denied outright.
What Petty Cash Should and Shouldn’t Cover
Petty cash works for small, irregular expenses that would be impractical to run through a purchase order or company card: postage for a certified letter, a last-minute box of pens, parking for a client meeting, coffee for an unexpected visitor. Most companies set a per-transaction cap in the $25 to $75 range to keep the fund focused on genuinely small purchases.
Some things should never come out of the box. Payroll or wages. Personal loans to employees. Routine travel reimbursement. Any purchase large enough to require competitive quotes or management approval. If a recurring expense keeps draining the fund, it belongs in the regular accounts payable process, not the cash drawer.
Handing Over the Cash
Once the slip is filled out and the external receipt is stapled to it, the employee brings the packet to the petty cash custodian. That is the one person in the office who controls the fund. The custodian checks that every field is complete, the math works, and the approval signature is there. If anything is missing, the request goes back before money changes hands.
After the cash is released, the employee signs a master petty cash log acknowledging the specific amount received. The log runs alongside the individual slips and shows the fund’s running balance. It is what you compare against the physical cash in the box, and when the two disagree, the log and its stack of slips tell you where to start looking.
Replenishing the Fund
Most businesses run petty cash on an imprest system: the fund starts at a fixed amount, gets spent down through documented disbursements, and gets topped back up to that same starting amount. The fund’s general ledger balance never changes. A $300 fund stays $300 on the books until you formally increase, decrease, or close it.
When cash in the box gets low, the custodian gathers all the vouchers since the last replenishment, sorts them by expense category, and submits them for a replenishment check. The accounting entry debits each expense account for what the vouchers show and credits the main cash account for the total of the check. Nothing touches the petty cash account itself, because the fund is only being restored.
Replenish at the end of every fiscal year regardless of how much cash remains, so expenses land in the correct accounting period. Waiting until January to replenish a December-spent fund means those December expenses show up in the wrong year’s books.
When the Box Doesn’t Balance
In theory, remaining cash plus vouchers always equals the fund’s authorized balance. In practice, that almost never holds over many transactions. Wrong change gets returned, a receipt goes missing, a small count is off. The gap goes into a “cash over and short” account in the general ledger. Shortages are recorded as an expense, reducing net income. Overages are recorded as revenue. The amounts are usually immaterial, but persistent shortages in the same direction signal a control problem worth looking into. The cash over and short account is temporary and closes out at the end of each accounting period.
Controls That Protect the Fund
Petty cash is uniquely vulnerable because it is physical currency sitting in a box. A few controls keep it honest:
- Single custodian. One named person controls the fund. Nobody else pulls cash or adds to the box. If the custodian is out sick, the fund stays locked until they return or a formal handoff occurs.
- Separation of duties. The person who approves a request should not be the same person handing over the cash, and neither should be the person who reconciles the fund. In a small office where that is not realistic, a supervisor should review every reconciliation.
- Surprise counts. Someone other than the custodian periodically counts the cash without warning, compares it to the log, and documents the result.
- Mandatory receipts. No external receipt, no reimbursement. This is the single most effective rule, and the one most frequently bent. Every exception weakens the system.
Tax Consequences of Sloppy Receipts
When an employee spends personal money on a business expense and gets paid back from petty cash, the tax treatment depends on how the company structures its reimbursement process. Under an accountable plan, reimbursements are excluded from the employee’s gross income, do not appear on the W-2, and are not subject to payroll taxes. To qualify, the arrangement must meet three requirements: the expense must have a business connection, the employee must substantiate it with adequate records, and any excess advance must be returned within a reasonable time.3Internal Revenue Service. Revenue Ruling 2003-106
If your petty cash process fails any of those three tests, the reimbursement becomes a nonaccountable plan payment. The full amount is taxable income to the employee, has to be reported on their W-2, and is subject to withholding and employment taxes. Sloppy petty cash procedures do not just create bookkeeping problems. They can turn tax-free reimbursements into taxable wages.
The business also loses on the deduction side if the records are inadequate. Publication 583 requires documents showing the amount paid and confirming the payment was for a business expense.1Internal Revenue Service. Publication 583 – Starting a Business and Keeping Records Without them, the company loses the deduction and effectively pays for the expense twice: once with the cash and again with the lost tax benefit.
How Long to Keep the Receipts
There is no single blanket retention period for all business records. The general rule is three years from the date you filed the return those records support, which matches the standard period during which the IRS can assess additional tax.4Internal Revenue Service. How Long Should I Keep Records Longer periods apply in specific situations:
- Six years if you underreport gross income by more than 25%.5Internal Revenue Service. Topic No. 305, Recordkeeping
- Seven years if you file a claim for a loss from worthless securities or a bad debt deduction.4Internal Revenue Service. How Long Should I Keep Records
- Four years for employment tax records, measured from when the tax becomes due or is paid, whichever is later.5Internal Revenue Service. Topic No. 305, Recordkeeping
For petty cash specifically, three years is the statutory floor in most cases. Some businesses default to keeping everything for seven years as a conservative blanket policy, and there is nothing wrong with that if storage is not an issue. Organize the vouchers and their attached receipts chronologically or by replenishment cycle, and store them where they can be retrieved quickly if an auditor calls.