How to Reconcile Petty Cash

To reconcile petty cash, count the physical cash on hand, matching it with recorded receipts, and identifying any discrepancies. This simple process ensures your petty cash balance accurately reflects real transactions. As 23% of small expense receipts disappear before reconciliation, creating accounting headaches and compliance risks, regular reconciliations help you catch missing receipts, fix errors, and maintain clean financial records.

Gather All Petty Cash Records

Collect all documents related to your petty cash for the reconciliation period. This includes the petty cash log, vouchers, receipts, and replenishment records.

For example, if your petty cash fund is $300 and you’ve spent $180 on small business expenses, like postage, office snacks, or supplies, you should have $120 left in cash. Having complete records makes it easier to verify this amount later.

Count the Physical Cash on Hand

Count the cash currently in your petty cash box or drawer. This count must be accurate since it serves as the base for reconciliation.

To ensure precision:

• Separate bills by denomination.
• Count coins separately.
• Record totals using a petty cash count sheet.
• Have another employee verify your count for accuracy.

This physical total should align with your expected cash balance after accounting for expenses and replenishments.

Verify Petty Cash Receipts and Expenses

Go through each voucher or receipt and confirm it’s legitimate and properly recorded. Ensure every transaction:

• Has a clear date and purpose.
• Is approved by the right person.
• Matches the amount deducted in the petty cash log.

For instance, if there’s a $25 taxi receipt, check that it’s recorded in the log and subtracted correctly. Missing or duplicate receipts are common issues you’ll need to flag.

Calculate the Expected Petty Cash Balance

Next, calculate what your petty cash balance should be using this formula:

Starting balance – Total spent + Replenishments = Expected cash on hand

Example: 

If you began with $300, spent $180, and haven’t replenished the fund, your expected cash balance is:

$300 – $180 + $0 = $120

Compare this to the physical count. If it matches, your petty cash is reconciled.

Identify and Resolve Discrepancies

If the actual cash doesn’t match your expected balance, identify the reason. Common causes include:

• Misplaced or missing receipts.
• Incorrectly logged expenses.
• Unauthorized withdrawals.
• Simple addition or subtraction errors.

For example, if your petty cash shows $115 but should be $120, there’s a $5 shortage. You might find that a $5 parking expense wasn’t recorded in the log.

Record Adjustments and Update the Ledger

Once discrepancies are resolved, update your petty cash ledger and accounting records. If there’s an unresolvable shortage or overage, create a journal entry to adjust for it.

Example journal entry for a $5 shortage:
Debit: Cash Short or Over $5
Credit: Petty Cash $5

This ensures that your books reflect the true cash position.

Replenish the Petty Cash Fund

After reconciliation, refill the petty cash fund to its original balance. If your fund is set at $300 and you spent $180, withdraw $180 from the bank to restore it. Record this replenishment transaction in your books.

Regularly replenishing ensures your petty cash fund is always ready for small purchases.

Maintain a Regular Reconciliation Schedule

Petty cash reconciliation should be performed consistently, weekly, biweekly, or monthly, depending on transaction volume. Regular checks help detect issues early and prevent misuse.

Store all reconciliation reports and supporting receipts for audit purposes.

Simplify Your Financial Operations with DepositFix

If your business frequently manages payments or small transactions, DepositFix can help you streamline your process. DepositFix integrates directly with your payment forms, automating the flow of transaction data into your accounting system. It reduces manual entry errors and ensures that every payment, refund, or petty cash reimbursement is accurately recorded. DepositFix connects your invoicing and reconciliation workflows, and saves time and makes financial tracking easier than ever.