Petty Cash and Floats: Running Company Cash Without Leaks

If cash passes through several hands in your business and nobody can say at month end what was spent and why, the problem is rarely the people — it is the absence of a simple float system. This article covers designing petty cash and floats end to end, for companies without a large finance team.

Cash on hand and a float are not the same account

In many ledgers I have reviewed, every rial of cash sits under a single "cash" heading, which is why the balance never agrees with a physical count.

Cash on hand is company money held on the premises; its balance must always be verifiable by counting. A float is a defined sum entrusted to a named individual to settle small expenses. Its substance is a receivable from that person — until they hand over supporting documents, they owe the company.

The distinction is practical. With each float in its own sub-account per holder, you know at any moment who holds company money and for how long.

Why cash is the riskiest asset you hold

Cash is portable, unmarked and leaves no trace, which is why most small but persistent losses run through it — dozens of minor items rather than one large withdrawal. Cash control is therefore a design problem before it is a trust problem: one person holding the money, approving the spend and posting the entry is vulnerable even with honest staff. The broader framework is in internal control and fraud prevention.

Imprest versus variable floats

I recommend the imprest method in almost every case. At any moment, cash held plus unsettled vouchers must equal the approved ceiling — a test any owner can run without accounting knowledge.

Setting the ceiling and the permitted scope

Base the ceiling on two to four weeks of small expenditure. More important than the number is a written permitted scope:

• Allowed: office consumables, local transport, modest hospitality, minor repairs, postage and freight documents, duties and copying.
• Not allowed: fixed asset purchases, supplier advances, staff loans or salary advances, contractor payments, any item above the single-item limit.

Set a single-item limit too, typically one fifth to one tenth of the float; anything larger goes through the normal purchase and bank payment route.

The operating cycle, step by step

1. Written authorisation setting the ceiling, the named holder, the permitted scope and the single-item limit.
2. Initial payment from the company bank account to the holder — not cash drawn from the till.
3. Request form for each payment, with a defined approver.
4. Evidence collected at payment, marked with date, description and cost centre.
5. Consolidation into a numbered schedule the holder reconciles to cash still held.
6. Review by finance for authenticity, scope and classification.
7. Posting and top-up, restoring the ceiling.
8. Periodic count, at least monthly and preferably unannounced.
9. Year-end settlement before the fiscal year closes, or a signed count certificate.

The journal entries

Establishing or increasing a float debits the float account and credits bank. No expense is recognised — one asset simply becomes another.

Settlement and top-up debits the expense accounts and credits bank. Note that under the imprest method the float account itself does not move and its balance stays constant.

Reducing or closing a float debits bank and credits the float account.

Cash over and short captures any difference between the count and the ledger, and must be cleared each period — either charged to the custodian or, with management approval, written off. Every voucher needs a clear description, the schedule number and complete attachments.

Controls that actually work

• Segregation of duties: holding the cash, approving the spend and posting the entry should not sit with one person. In a three-person company, at minimum move approval to the owner.
• Surprise counts: the single most effective control. A short certificate signed by two people is enough.
• No cash-to-cash transfers: fund floats by bank transfer; drawing from the till breaks the audit trail.
• A settlement deadline, say fifteen days, with overdue floats listed in the monthly reporting pack.
• Bank receipts daily: customer cash goes to the bank, it does not fund expenses. This rule is broken most often in retail.

Documentation and tax deductibility

Small expenses feel immaterial, but it is their aggregate that gets disallowed on audit. Three conditions apply: the cost must relate to the business, be evidenced, and be reasonable. In practice that means invoices identifying the seller, no cash payments above the prescribed ceiling (check the current circular for the figure), hospitality and transport you can explain, and expense schedules kept attached to the voucher.

Five common mistakes

The same discipline extended to bank accounts is covered in bank reconciliation.

Key takeaways

• Cash on hand and floats are separate accounts; a float is a receivable from a person.
• Use the imprest method so cash held plus unsettled vouchers always equals the ceiling.
• Put the ceiling, permitted scope and single-item limit in writing before anything else.
• Surprise counts and segregation of duties are the cheapest controls with the largest effect.
• Take small-expense evidence seriously; undocumented items add up on audit.