Petty Cash Book – Definition
Petty Cash Book is maintained to record small expenses such as postage, stationery, telegram. A separate column is allotted for each type of expenditure. The difference between the total of the debit items and that of the ‘total column’ on the credit represents the balance of the petty cash in hand.
Generally, in all business houses, payments are made by cheque for battery control over cash. But the payment of small expenditures like, stationery, traveling, postage, telegrams, office teas and newspapers by cheque are impartial. Besides the above-mentioned problem, the chief cashier of a larger business has to deal with numerous transactions of large amount daily. If the chief cashier records petty expenses in main cash book then chief cashier and main cash both will be overburdened.
To solve these problems the chief cashier delegates responsibilities to some senior staff member for day-to-day small transactions. For this purpose, he is given a small amount and a separate book to record these small payments. The book in which these small payments are recorded is called “Petty Cash Book”. The found that is used for small payments is known as “Petty Cash” and the person who is responsible for makings small payment and recording them is called “Petty Cashier”.
Systems of Maintaining Petty Cash
Three different systems are being used for maintaining petty cash. These systems are:
- Open system or ordinary system of petty cash.
- Fixed system of petty cash.
- Imprest system of petty cash.
Open or Ordinary System of Petty Cash
Under this system, the petty cashier is given a lump-sum amount for meeting petty expenses. When the whole amount of petty cash is spent, the petty cashier submits the account to chief cashier who again pays a lump-sum amount to petty cashier.
Fixed System of Petty Cash
Under fixed system of petty cash, a fixed amount for a fixed period time is given to the petty cashier. At the end of fixed period, the petty cashier submits the details of petty expenses and chief cashier again advances a fixed amount for the next fixed time period.
Imprest System of Petty Cash
It is the most scientific method to maintain Petty Cash. Under this system, total petty expenses for a particular period are estimated and the amount is advanced to the petty cashier. This amount is known as “Imprest Cash“. The petty cashier spends the imprest cash during the period.
At the end of the period, petty cashier submits the statements of petty expenditure to the chief cashier. The amount spent by the petty cashier is reimbursed, thus making up the balance to the original amount. In this way petty cashier will start every time with an amount equal to imprest cash and amount with the petty cashier will never exceed imprest cash.
Advantages of the Imprest System
The imprest system claims the following advantages:
- It saves the time of the chief cashier who is very busy with the main cash book.
- It reduces the chances of misuse of cash because petty cashier is not allowed to keep idle cash with him.
- It reduces the chances of misappropriation as the imprest cash is a very small amount.
- Errors are rectified very soon as the record of petty cash is checked by the cashier periodically.
- It trains young staff to handle money with responsibility.
Types of Petty Cash Book
The petty cash book is of the following two types:
- Simple Petty Cash Book
- Analytical Petty Cash Book
Simple Petty Cash Book
Simple Petty Cash Book is just like the main cash book. Cash received by the petty cashier is recorded on debit side and all payments for petty expenses are recorded on credit side in one column.
Format of Simple Petty Cash Book
Example of Simple Petty Cash Book
Record the following transactions in a Simple Petty Cash Book for the Month or January 2019.
Analytical Petty Cash Book
It is the most advantageous method of recording petty cash payments. In this type, a separate column for each petty expense is provided on credit side. When petty expense is recorded in total payment column, the same amount is recorded in the relevant petty expense column.
Format/Specimen of Analytical Petty Cash Book
Example of Analytical Petty Cash Book
Record the following transactions in an analytical petty cash book for the month of January 2019.
The Operation of Petty Cash
When a petty cashier needs money, he is given a cheque by the main cashier. This cheque is recorded on the payments side of the main Cash Book. The petty cashier gets cash against the cheque from the bank and records the cheque in the Receipts Column of the Petty Cash Book.
When a payment is to be made out of the petty cash fund, a Petty Cash Voucher (PCV) is prepared by the petty cashier. This voucher must be authorized by a responsible officer before the petty cashier makes the payment. Upon payment, the petty cashier records the date, details of the payment (in particulars column), PCV No., the amount of the voucher in the Total payment Column and also in the relevant analysis column.
The first Petty Cash Voucher of the month is numbered as 1, followed by the number of the month, e.g. the first voucher of May would be numbered as 1/5, the next as 2/5, the next as 3/5, and so on.
Posting Petty Cash Book to Ledger
At the end of each month when the petty cashier approaches the main cashier for reimbursement, the latter cashier prepares a Cheque Voucher in which he lists the total of various payment analysis columns of the petty cash book. For example, consider the following facts:
When a cheque (for $402) is issued to the petty cashier, the entries made in the main Cash Book are:
(a). The total, $402, is shown on the Cr. side of the Cash Book (Bank Column) as payment.
(b). In ledger, Wages Account is debited by $ $113.20; Transport Account by $41.80; Stationery Account by $86.60; Staff Tea Account by $26.40 and Telephone Account by $140.
Thus the total debits in ledger agree with the credit in the main Cash Book. In other words, the Petty Cash Book doesn’t form a part of Double Entry Bookkeeping. Its position is similar to a subsidiary book. The Petty Cashier is assumed always to have cash equal to the imprest account in the form of actual cash or paid-up petty cash vouchers.