How to Record Cash Expenses and Petty Cash in QuickBooks Online (Without Making a Mess)

Cash expenses can feel deceptively small. A coffee run, parking, supplies picked up on the way to a meeting. but when those transactions aren’t recorded properly you are missing expenses which means your profit looks too high, you don’t get reimbursed for out of pocket costs, and could pay too much tax.

I see this all the time in QuickBooks Online files. Cash expenses are either missing completely, duplicated, or recorded in a way that makes reports harder to trust. The good news is that once you understand the right workflow, cash and petty cash transactions are very straightforward to manage.

First, a Quick Clarification: What Counts as a Cash Expense?

A cash expense is any business purchase paid for with physical cash or money that came directly out of your pocket, not through a connected bank account or credit card.

Some common examples include small office supplies, parking meters, tips, mileage advances, or reimbursable purchases made personally for the business.

If a transaction came through your bank feed or credit card feed, it is not a cash expense. Those should be handled through the bank transactions screen. Mixing the two is one of the fastest ways to create duplicates.

Option 1: Recording a Simple Cash Expense

If you occasionally pay for something in cash and want to record it properly, the Expense form in QuickBooks Online is usually all you need.

When you create an expense, choose Cash or Petty Cash as the payment account. This tells QuickBooks that no bank account was affected. From there, enter the vendor, category, amount, and date just like any other expense.

If you have a receipt, attach it. This is especially important for audit support and for anyone who plans to review the books later, including your accountant or tax preparer.

This method works well when cash purchases are infrequent and don’t require formal tracking.

Option 2: Setting Up a Petty Cash Account

If your business regularly uses cash, setting up a petty cash account is a much cleaner approach.

A petty cash account is simply an asset account in your chart of accounts that represents physical cash on hand. You usually fund it by withdrawing money from the bank. That withdrawal is not an expense. It’s just moving money from one place to another.

Once petty cash is funded, individual purchases are recorded as expenses paid from the petty cash account. This gives you a clear record of how the cash was used and how much should still be on hand.

One of the biggest advantages of using a petty cash account is visibility. At any time, you can look at the account balance and compare it to the actual cash in the drawer or envelope. If those numbers don’t match, you know something needs attention.

Reimbursements Are Not the Same as Cash Expenses

This is an important distinction.

If you paid for a business expense personally and plan to reimburse yourself, that should usually be recorded as an expense paid to you, not as petty cash.

In QuickBooks Online, this often means using an expense form and selecting your personal reimbursement account or clearing account, depending on how your file is set up. Recording reimbursements correctly ensures you don’t understate expenses or accidentally reduce cash balances that were never used.

Common Mistakes to Avoid

The most common issue I see with cash expenses is duplication. For example, someone records a cash expense manually and then also categorizes a bank withdrawal as an expense. This double counts the cost.

Another frequent problem is using a bank account for cash purchases. This makes reconciliations harder and causes confusion when transactions don’t line up with statements.

Finally, many people skip receipts altogether. Even for small amounts, attaching documentation builds better habits and saves time later.

When Cash Is Fine and When It’s Time to Rethink It

There’s nothing wrong with using cash for small purchases, but if cash activity starts to grow, it may be a sign that a debit card, credit card, or expense reimbursement process would be more efficient.

QuickBooks Online works best when transactions are traceable. The fewer manual steps required, the easier it is to keep your books accurate and current.

The Bottom Line

Cash expenses and petty cash don’t have to be complicated, but they do need to be handled intentionally. Whether you record an occasional cash purchase or manage a full petty cash system, the goal is the same: accurate records you can rely on.

If you take the time to set this up properly, reconciliations become easier, reports make more sense, and you spend less time second-guessing your numbers.

If you want help reviewing how cash expenses are currently handled in your QuickBooks file, or you’re not sure which setup makes the most sense for your business, that’s exactly the kind of thing I help with every day.

If you want to take this a step further, I’ve shared a few resources below that many small business owners and bookkeepers find helpful. You can compare QuickBooks Online plans to make sure you’re using the right features for your business, download my free Month-End Checklist to help keep your books tidy and review-ready, or book a free consultation if you’d like help setting up cash expenses or cleaning up an existing file. Sometimes a quick conversation can save hours of frustration later.

When you’re entering cash expenses in QuickBooks, the most important thing to think about is where the cash is actually coming from.

In this video, I’m walking through two common scenarios: using petty cash, and situations where the owner pays business expenses out of their own pocket. You’ll see how to record both cleanly, keep your reports accurate, and avoid creating confusion later on.

The most important thing to consider when you're entering cash expenses or petty cash transactions is where is the cash coming from? Now, in this first example, we're gonna take it out of our petty cash, so I'm gonna pop up here to create an expense, and I'm going to. Choose from the payment account, our petty cash account. So this could be if you have a cash box sitting somewhere in your office, maybe even the cash drawer, in which case it's probably called the cash drawer. Then we're going to say what we purchased.

I'm gonna go for some office supplies, office expenses here, and somebody ran off out. With $25, they've come back with the receipt and they've paid cash, and we record this expense here. Save and close. If we take a quick look at our report just to see that $25 expense.

There we go. It's the only thing sitting in our sample company right now, $25 for office expenses. So let's go take a quick look at what happened in the petty cash account.

Here we have petty cash. It's a cash on hand type account for you. The register, I guess we didn't put any cash in there beforehand. That wasn't so smart, was it? I probably should have, why don't I transfer some money into that cash account from the bank? So let's just say that yesterday. Yesterday I went, oh, that was a Saturday, Friday I went to the bank.

I took a hundred dollars out of the checking account, popped it in the petty cash. Now I'll hit save and close. So you can see we had a hundred dollars in our petty cash and we spent 25 of it. And that's typically how it goes when you're spending cash. Now the other area I get asked a lot of questions about is what happens when the owner or business person is spending their own money.

Now, there are multiple ways to do this, but the cleanest way. I like to do it is to create an account here in the chart of accounts for owners cash. And I do this with nearly all of my clients. So we'll have a new account and it could be called your back pocket, it could be called.

Personal cash. It could have your name on it, I could call it Kerry's Cash. But I'm just gonna go with Owner Cash and I'm calling it owner Cash to differentiate from owner's draw or shareholder loan. And the reason I'm doing this is because I wanna be able to set it up as a bank type account, and I'll show you why that's important.

When we ended up, entered our expense earlier, we went into here. We were able to select a ca an account here, own a cash or petty cash, and that means we can enter our expenses in the regular way using a bank type account that in this case is own a cash. We can add an attachment here.

So let's just grab some fuel. The owner put fuel in the business vehicle and it was $75 and save and close. So now we know the owner has paid $75 of their own money into the business. Okay, so let's scrub a balance sheet and have a look what this looks like now.

So this is a little bit interesting. Clearly, I'm not very imaginative with numbers. We had a hundred dollars in cash and spent 25, so there's $75 left in our petty cash. And you can see here there's a minus number. The owner is owed 75. So if we take a look down here, there is often, uh, an account for shareholder loan or a liability account, a pay to owner.

What I usually suggest you do is simply tally up all of these expenses in owner cash. Then either pay yourself or transfer it to a shareholder loan account. So, why don't we pay ourselves for this right now? I'm gonna go to write a check. It could be an e-transfer. And we're going to choose owner cash.

We're gonna take the money from her checking account, and we're. Use a current date and we're going to pay back the $75 that we're owed. So when we click save and close now, it should refresh and you can see we're owed nothing. The petty cash has remained and there's $75 less in our checking account. Now you could also have the situation where using either petty cash or owner cash, you are confronted with a spreadsheet of a whole pile of expenses or perhaps a credit card statement that's a personal credit card that you need to be reimbursed for.

Once again, you simply. Grab this expense owner cash or petty cash. We're gonna go with owner cash and we could have some fuel here for, let's be a little bit more imaginative and say $80. There could be some office supplies. Office expenses here. Maybe $50. Toilet paper, some coffee. I wonder if we have postage.

Do we have postage or anything? No. Um, let's have a quick look and see what else. Oh, we went to the dump. We went to the dump, and we have a $15 disposal fee. So you can enter all of these rows under the one amount and you'll be able to see what the owner is owed. So let's save and close this. Wait for our balance sheet to refresh, and here we now are owed $145 and if we take a look back at our profit and loss statement, we'll be able to see all of those expenses reflected.

So there we go. We've captured our fuel, our disposal fees, all of the office expenses. So all of the expenses that have been paid by the owner or from petty cash are captured and they're reflected in our books. You're also able, if you're using a petty cash or. Bank type owner account, you can open up that app on your phone and photograph those receipts before you lose them, and that way you can also then allocate them within QuickBooks

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