Petty Cash Book Systems, Advantages, Types, Operation

Whenever a petty expense is recorded in the total payment column, the same amount is recorded in the relevant petty expense column. It should be noted that the balance brought down every time a new period starts should be the same as the original amount that was given to the petty cashier by the main cash book cashier. In the petty cash book with imprest system approach, the main cashier assess the total expenses paid for by the petty cashier and then reimburse an equivalent amount. That is, at any time, the total of petty cash balance and all expenses that have not been reimbursed to the petty cashier is equal to the agreed float.

Thereby the possibility of fraud and forgery is removed and there remains control over expenses. On 1st Jan. 2003 head cashier pays $500 to the petty cashier in advance. In January, the petty cashier spent $400 and submits a statement of expenditure for the spent amount to head cashier. The petty cashier of John and James Company paid cash for the following expenditures during March 2018. In this way, the petty cashier will begin every period with an amount equal to imprest cash, and the amount held by the petty cashier will never exceed this. It is important to have internal controls for your petty cash system, to prevent abuse of the system or theft.

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Unfortunately, even if you have a scrupulously kept log and a strict receipt-reconciliation process, a petty cash book will never be the best option for your business. Manual data-entry is incredibly error-prone and it leaves you vulnerable to theft or fraud. Your business has to manage small expenses somehow, and you may have decided that petty cash is the method for you. However, for the uninitiated, a quick explainer of petty cash is that it’s a physical fund that employees can dip into to pay for everyday expenses, such as staples or printer paper. Journal entry is not required for a cash payment of transactions from a petty cash fund. Every petty cash voucher/receipt is to be signed by the petty cashier and the recipient.

Details or narration about the source or use of funds are required in a cash book but not in a cash account. The amounts you record in your petty cash log and the balance you calculate each time you add or remove funds should match the amount that remains in the box after you make the transaction. Your petty cash book protocols should include a system for verifying that funds have been added and subtracted accurately and honestly. For example, plan to count the funds and reconcile them with the amounts in your petty cash book every time you add cash.

Petty Cash Book: Definition, Features Example, Format…

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3.It is cheap and less time consuming because the transactions involved are not many especially like in the case of the big organizations. The cashier who was given Rs. 100 under imprest system on Aug 4, 1986. To solve these problems, the chief cashier delegates responsibilities to another senior staff member to account for day-to-day small transactions.

Format of an Analytical Petty Cash Book

This voucher must be authorized by a responsible officer before the petty cashier makes the payment. The amount spent by the petty cashier is reimbursed, thus making up the balance to the original amount. In addition, the chief cashier in a large business is required to handle numerous large transactions on a daily basis. Any cash received by the cashier is recorded on the debit side of the book. When the petty cashier spends the amount, he or she submits the account to the head cashier for approval. Particularly in the case of small transactions, it is often challenging to keep a track record of all the expenses that have been incurred.

To pass the journal entry for total expenses paid, individual petty expenses are debited and credited to Petty Cash Account. Considered the most beneficial method of recording petty cash payments. In the analytical version, a separate column is used for each commonly occurring item of expenditure such as stamps, postage & handling, stationery, wages etc. A cash book is a separate ledger in which cash transactions are recorded, whereas a cash account is an account within a general ledger. A cash book serves the purpose of both the journal and ledger, whereas a cash account is structured like a ledger.

Following is the Receipts and Payments Account of Bharti Club …

Record the following transactions in an analytical petty cash book for the month of January 2019. Record the following transactions in a simple petty cash book for the month of January 2019. At the end of fixed period, the petty cashier submits the details of petty expenses, and the chief cashier again advances a fixed amount for the next fixed period. It is then used by him/her to manage all petty expenses and make the required payments. At the beginning of a new period, the money is replenished when it has been spent. It includes balances and transactions, which, if otherwise individually managed, might be harder to keep track of.

In all businesses, some payments are made by check for better control over cash. However, for the payment of small expenditures (e.g., stationery, travel, postage, and newspapers), paying by check is unreasonable. The difference between the sum of the debit items and the sum of the credit items represents the balance of the petty cash in hand. Imprest systemThe word “imprest” means – A fund that a business uses for small expenditures and usually restores to a fixed amount after a period of time.

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The petty cashier is always assumed to hold cash equal to the imprest account in the form of actual cash or paid-up PCVs. A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals. As mentioned earlier, it can be seen that maintaining a petty cash book is very important for the company to ensure that there are proper reconciliations that limit activity and reviews, which reduces the chance of error. However, a petty cash book maintains all balances that can be subsequently double-checked if there is a need to do so. A petty Cash Book can, therefore, be described as a ledger that lists down all the petty cash expenses that the company has incurred over a specific course of time. At the end of the month, staff submit expense reports plus receipts.