Petty cash fund is the minimal amount of money kept on hand by a business entity to meet small expenditures eg postage, taxi fare etc. One individual should be responsible for the fund to maintain control. The fund is available currency and is periodically reimbursed, usually monthly. At any point, the fixed amount of the fund consists of the total currency left and the vouchers (receipts) for the expenditures made. The vouchers should be perforated so they will not be used again.
To avoid much red tape and many small insignificant checks, most organizations use a petty cash fund to take care of minor disbursements. This fund is usually set up on an imprest basis. That means the fund is set up with a certain amount of cash and all minor payments are made from the cash.
When there is a need to replenish the petty cash fund, a debit is made to each of the individual expenses paid from the fund, and a credit is made to Cash in Bank for the total amount to replenish the fund. The only time another entry would be made to the petty cash, would be when the account is closed or the amount in it is adjusted to a new level.