Some companies set up a petty cash fund (also known as an imprest system) to make small disbursements. For example, a company might put $100 into a petty cash fund in case an employee needs money for postage costs or a client needs money for parking.
A company would set up a petty cash fund by writing a check to one of its employees; this person will serve as the custodian of the petty cash fund. The custodian then cashes the check and puts the money in a lockbox or a locked drawer. When money is needed, the custodian must sign off and get the signature of the person receiving the money as well as a receipt. No journal entries are made, however, until the fund is replenished at the end of the period.
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