Petty Cash Management: Imprest System and Controls
How to run petty cash so it balances: the imprest method, vouchers, replenishment, counting, VAT on small purchases and anti-leakage controls.
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Petty cash is the small float for small purchases: courier fees, stationery, cleaning supplies, a taxi. Amounts are low, but because it's physical cash with little paperwork, it's a classic place for leakage — and for an untidy set of books. A simple system fixes both.
The imprest system
An imprest float is a fixed amount, say AED 1,000. At any time, cash in the box plus vouchers for money spent must equal the float. When the cash runs low, you replenish it by exactly the amount spent. This makes shortages and surpluses obvious.
Set it up
- Choose the float to cover about 2–4 weeks of small spending.
- Appoint one custodian — one person responsible, with a lockable box or safe.
- Set a per-transaction limit — anything larger goes through normal purchasing and bank payment.
- Open a petty cash account in your ledger (an asset, like cash).
- Record the opening with a journal: Dr Petty cash / Cr Bank for the float.
The voucher
Every payment out needs a petty cash voucher:
- Date and voucher number (sequential).
- Amount and what it was for.
- Name of the person who received the money, and their signature.
- Approval by someone other than the recipient.
- Attach the receipt or invoice.
If there's no receipt, write a signed note explaining why — and keep those rare.
Replenishing
When the float runs low or at month-end:
- Count the cash and total the vouchers. Cash + vouchers should equal the float.
- If they differ, record the difference as a cash over/short expense and investigate repeat patterns.
- Prepare a reimbursement request listing vouchers by expense category.
- A manager approves, and the cheque or transfer is for the vouchers' total.
- Post: Dr expense accounts (and input VAT) / Cr Bank. The float returns to its original amount.
| Step | Journal |
|---|---|
| Setting up the float | Dr Petty cash 1,000 / Cr Bank 1,000 |
| Replenishing after spending 640 of expenses (incl. 25 VAT) | Dr Expenses 615 / Dr VAT recoverable 25 / Cr Bank 640 |
Petty cash itself only moves when you change the float size.
VAT on petty cash purchases
Input VAT on petty cash purchases can usually be recovered if you hold a valid tax invoice (or simplified invoice, where allowed) showing the supplier's TRN and the purchase is for business. Till slips without a TRN generally won't support a claim. See expense tracking and input VAT recovery.
Controls
- Surprise counts by someone other than the custodian — at least quarterly.
- No mixing personal cash with the float, and no IOUs.
- No cashing personal cheques from the box.
- Segregation: the custodian shouldn't also approve vouchers or post to the ledger.
- Safe storage and limited access.
- Review the pattern of spending for repeated round amounts, unusual categories or the same recipient.
These controls tie into the broader list in the internal controls checklist for small businesses and the fraud red flags guide.
Alternatives to cash
For many businesses, a prepaid or company card with receipts uploaded gives better control: spending is traceable, limited by the card, and appears on a statement you can reconcile. Cash is fine for genuinely small, cash-only costs.
Month-end
Petty cash belongs in the month-end close checklist: count, agree to the ledger, replenish, post. A balance in the ledger that doesn't match the physical count is a finding waiting to happen.
Track it in your books
Pyalm Books lets you record expenses with input VAT, keep cash and bank accounts in the ledger and reconcile them, so petty cash replenishments post to the right categories. It is free during beta.
Rules and thresholds change. Confirm the current position with the Federal Tax Authority (tax.gov.ae) or a qualified adviser before you file or pay.