What Is a Petty Cash Transaction?

petty-cash-transaction Credit: Mitch Hrdlicka/Photodisc/Getty Images

Petty cash transactions are small business expenses that are paid out in cash, according to About.com. Frequently a company has a small amount of cash on hand that is used to pay for small purchases or reimburse employees for company purchases made out of pocket. Petty cash expenditures are recorded in the company's financial records to keep track of how the money is utilized.

About.com notes that a company may limit the amount of a transaction made using petty cash, such as transactions under $25 like purchasing refreshments for a meeting. Using petty cash for small transactions lessens the amount of checks that a company cuts for small expenses and the amount of purchase orders to be processed. Employees who use petty cash for company purchases may be required to provide a receipt of the purchase and record the date, amount and reason for the purchase in company financial records. To prevent misuse of petty cash funds, the amount of people who have access to the petty cash fund may be limited, requiring employees to obtain approval for a purchase before using petty cash for a transaction.

Quickbooks explains that petty cash transactions can be noted as a part of a company's account register. For correct accounting, petty cash transactions may be associated with a specific expense account in the financial records.