A change fund is a fixed amount of cash kept in a register drawer for the sole purpose of making change for customers who pay in cash. The amount is set once, placed in the drawer before the first sale, and pulled back out at the same dollar figure at the end of the shift. Whatever cash is left over is the day’s sales. The fund itself never gets spent, never gets loaned out, and never changes size unless management formally decides to change it.1
How It Differs From Petty Cash
People mix these up often enough that it’s worth clearing up before anything else. Petty cash is a small pool used to pay for minor expenses like office supplies or postage; it gets spent down and replenished. A change fund is not spent at all. You don’t use it to buy supplies, cash personal checks, lend money to employees, or cover travel. The dollar total in the fund stays constant. Only the denomination mix inside it moves around during the day.
Setting the Amount and the Denomination Mix
The right fund size depends on how your customers pay. A coffee shop running hundreds of small cash sales needs a different setup than a furniture store where most people swipe a card. Consider how many cash transactions you handle on a typical day, the average transaction size, and what denominations customers hand over. A business taking mostly $20 bills for $4 items burns through small bills and coins fast.
Most small retail operations start somewhere between $100 and $300 per register. High-volume locations like busy restaurants or convenience stores often need more. The point is having enough of each denomination to get through a full shift without running short. If cashiers are constantly breaking larger bills from the fund just to make change for other large bills, the fund is either too small or poorly balanced.
Adjust based on what you see. Running out of quarters every afternoon means adding a roll and pulling back on something else. The total stays the same; the mix shifts. Your bank can provide rolled coins and specific bill denominations when you need to rebalance, though some banks charge small fees for coin orders.
Opening and Closing the Drawer
Every shift starts with a count. The person taking the drawer physically counts every bill and coin, confirms the total matches the fund amount, and records the count on a log. Skipping this step is the single most common way businesses lose the ability to figure out where money went. If you find a shortage at closing and never counted at opening, you can’t tell whether the money was missing before the shift or during it.
Through the day, the fund does its job in the background. Cash from sales drops into the drawer, change comes out. The drawer’s total climbs, but the original fund portion is conceptually fixed.
At closing, the process reverses. The cashier counts the whole drawer, removes the exact fund amount in the correct denominations, and secures it for the next day. What’s left is the day’s cash sales, which should match the register or point-of-sale total. That reconciliation is where problems show up, and catching them daily is the whole reason to run a fund this way.
Controls That Keep the Fund Honest
One person should be responsible for each fund at any given time. That custodian is accountable for every dollar during their shift. When custodians change, the incoming person counts the fund before accepting it. Shared drawers make it nearly impossible to assign responsibility when cash goes missing.
Separate the duties around cash. The person handling the money should not be the same person recording the transactions in your accounting system. Someone other than the custodian should perform surprise counts at irregular intervals, so no one can predict when the next audit is coming.
Physical security matters just as much. When the fund isn’t in an active register, it belongs in a locked safe or fireproof cabinet with restricted access. It should never leave the premises or spend the night in anyone’s personal possession. Written procedures covering who has access, where the fund lives, and how shift changes work eliminate most of the ambiguity that leads to losses.
Shortages and Overages
When the closing count doesn’t match the fund’s fixed amount, you have either a shortage (less cash than there should be) or an overage (more). Neither is acceptable. Overages are not good news; they usually mean a customer was shortchanged, which is both a service problem and a sign of sloppy handling.
Document every discrepancy immediately, no matter how small. Record the date, amount, shift, and name of the responsible cashier. That paper trail is what makes patterns visible. A one-time fifty-cent shortage is probably a counting error. The same cashier coming up short three times a week is something else.
Chronic discrepancies usually point to a process problem: making change without ringing up the sale, miscounting during rushes, or weak training on the register. Sometimes the cause is theft, and the documentation is what lets you spot it. Small, consistent discrepancies handled early prevent larger ones later.
Accounting for the Fund
On the balance sheet, a change fund is a current asset. It sits inside the general Cash account or on its own line, depending on the size of the business and the level of detail in the chart of accounts. Because the fund amount is fixed, this entry doesn’t fluctuate unless you formally resize the fund.
Setting the fund up is a single journal entry: debit an account called Change Fund (or similar) and credit Cash in Bank for the same amount. No income or expense is affected. Cash is just moving from one location on the balance sheet to another.
Daily shortages and overages go into an account called Cash Over and Short. A $2 shortage is a $2 debit to Cash Over and Short. A $1 overage is a $1 credit. At the end of an accounting period, the net balance lands on the income statement. A net debit balance (more shortages than overages) is reported as a miscellaneous expense; a net credit balance shows up as miscellaneous income. Most businesses see small net shortages over time, and the amounts are usually small enough to fold into “other expenses.”
To increase the fund later, use the same entry as the original setup for the additional amount: debit Change Fund, credit Cash in Bank. To decrease it, reverse the entry. Either way, keep a written management authorization on file so there’s a clear record of why the amount changed. Reviewing the fund size once or twice a year against your discrepancy logs and denomination shortages is a reasonable habit; both tell you whether the amount or the mix needs updating.