Definition of Petty Cash
Petty cash is a small amount of currency and coins that a company has available to make very small payments instead of requesting and processing a company check. The amount of the petty cash fund is recorded in a current asset account entitled Petty Cash when the petty cash fund is established.
Example of Petty Cash Affecting Expenses
Assume that the petty cash money is used to pay postage of $10. While the company incurs this cost at the time of payment, it will be recorded in the general ledger account Postage Expense when the petty cash fund is replenished.
In order to get the expenses entered in the proper accounting period, it is necessary to replenish the petty cash fund at the end of each accounting period. (This is done in addition to replenishing the fund whenever the currency and coins are low.)