Operations

Petty Cash Management for Small Businesses

How to set up and run a petty cash float without losing track of small expenses.

Sentibooks · · 5 min read

Small daily expenses add up. Airtime, fuel, cleaning supplies, courier fees. If they come out of the owner’s pocket and get reimbursed from memory, they disappear from your books and from your tax deductions.

Petty cash solves this. Set it up properly and it takes 10 minutes a week.

What petty cash is for

Petty cash is for small, immediate expenses that cannot wait for a bank transfer or supplier invoice. Typically anything under KES 5,000.

It is not for:

  • Salary advances (those go through payroll)
  • Personal spending
  • Large purchases (those go through proper procurement)
  • Anything you can pay by M-Pesa or bank

The imprest system

The simplest effective petty cash system is called imprest. Here is how it works:

  1. Set a fixed float. Say KES 20,000.
  2. Custodian (the person managing the cash) keeps this in a lockable box.
  3. When cash is spent, custodian records the expense and attaches the receipt.
  4. When the float drops to half, the custodian requests replenishment.
  5. Finance reimburses the exact amount spent, restoring the float to KES 20,000.

The float always returns to the original amount. You can audit it any time by counting the cash plus receipts.

The petty cash voucher

Every single payment from petty cash needs a voucher. No exceptions.

A petty cash voucher records:

  • Date
  • Voucher number (sequential)
  • Amount
  • What it was for
  • Who received the money
  • Who approved it
  • Signature of recipient

Attach the receipt to the back of the voucher. No receipt, no payment. If a vendor cannot issue a receipt (a matatu ride, for example), the recipient writes a simple note explaining the expense.

The petty cash book

Every entry in the petty cash book mirrors a voucher. It shows:

Voucher # Date Description Paid Balance
001 01/05 Airtime for office 500 19,500
002 02/05 Fuel for delivery van 3,000 16,500
003 03/05 Courier to Mombasa 800 15,700

At the end of each week, the balance in the book should match the cash in the box.

Monthly reconciliation

At month end:

  1. Count the cash in the box
  2. Add up the total of vouchers
  3. Cash + vouchers should equal the original float
  4. Record all vouchers in your accounting software
  5. Replenish to restore the float

If the numbers do not balance, investigate before replenishing. Discrepancies get worse if you ignore them.

Who manages petty cash

The custodian should not be the same person who approves expenses or reconciles the account. Separation of duties matters, even in a small business.

In a 3-person business, the person who runs petty cash is different from the person who signs off on the monthly reconciliation. Even if the owner approves everything, someone else should hold the box.

KRA implications

Every petty cash expense is a business expense and should be recorded. For VAT-registered businesses, small cash expenses usually do not have recoverable VAT, but the base expense is still deductible against income tax.

Without receipts, none of this is provable. Receipts or vouchers, every time.

When manual petty cash stops working

The voucher book works until it doesn’t. Three thresholds mark where manual petty cash starts to break.

Around 15 to 20 expenses a week, the process slips. Receipts go missing, vouchers get signed by one person instead of two, and the month-end reconciliation comes up short by amounts that are individually small and collectively concerning.

At 40 to 60 expenses a week, weekly reconciliation takes a full hour, the custodian is spending a third of their time on petty cash, and the monthly close starts to suffer.

Above 100 expenses a week, the amounts are no longer petty and the process is no longer a control. Most of those expenses should be on purchase orders, not paid from a cash box.

We covered the thresholds and what to do at each one in detail in Petty Cash Automation: When to Stop Using a Voucher Book. The short version: at each threshold, there is a lighter, faster way to run petty cash that does not require a full software migration.

Internal controls for petty cash

Petty cash is the smallest account in the business and the easiest to abuse. Not because the amounts are large, but because the controls around a KES 500 expense are rarely as serious as the controls around a KES 50,000 invoice.

The core controls that stop leakage:

  • Fixed float. The box holds an exact amount, always. Replenishment restores the exact amount. No drift.
  • Voucher for every payment. No cash out without a voucher, no voucher without a receipt attached.
  • Per-transaction limit. Usually KES 2,000 to KES 5,000. Anything above goes through the regular purchasing process.
  • Weekly reconciliation. Cash in hand plus vouchers should equal the float every Friday. Monthly is too late.
  • Surprise counts. Once a month, unannounced. This is the only control that catches falsified records.

We covered the full framework, including the seven controls that matter and how to introduce them over four months, in Internal Controls for Petty Cash in a Kenyan Business. If the business currently runs on cash with no formal controls, that post is the starting point.

For the specific rules about what does and does not belong in petty cash, see Petty Cash Expenses: What Counts and What Doesn’t.

How Sentibooks helps

Sentibooks tracks petty cash as a dedicated account. You record each voucher, attach the receipt, and the monthly reconciliation flows directly into your books. No separate spreadsheet.

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