Petty cash is simply the cash you use for all those little expenses that don't merit using checks or a credit card. Yet petty cash expenses do add up, so you can't afford to overlook them in your expense tracking systems. Even though, by definition, petty cash is used to buy little things that often fall through the cracks because they are small, there are ways to track and control it
Keep every receipt -- even the ones that may not seem important.
Make a separate fund for petty cash. Pay your cash expenses out of this fund and log each expense on paper, filing each of those receipts as proof. You might want to staple the receipts to an 8-by-10 inch sheet for easy filing.
Update your logs regularly and keep two columns with a list of each deduction from the original fund and a note of how each expense is spent.
At the end of the year you will have a total of all your small petty cash expenses. Ideally you will be able to break these expenses into different categories, like advertising, office supplies, entertainment, etc. If you are keeping your petty cash log manually, you might want to categorize and add up your totals on a weekly or monthly basis rather than letting them pile up.
The easiest way to keep track of petty cash is to use a good bookkeeping computer software. Most of these programs will make the job much easier by categorizing and tallying the math for you.
Whether you handle your petty cash manually or on the computer, just make sure you do keep track of your petty cash. Any business can benefit all the legitimate deductions it can get.