Petty Cash Book: Payments in cash of small amounts like traveling expenses, postage, carriage etc. are petty cash expenses. These petty cash expenses are recorded in the petty cash book. The petty cash book is maintained by separate cashier known as petty cashier. The firm may adopt Imprest System of maintaining petty cash. The petty cashier is given a certain sum of money at the beginning of the fixed period (e.g. a month/fortnight) which is called float. The amount of float is so fixed that it may be adequate to meet petty expenses of the prescribed period. The balance in the petty cash book shows cash lying with the petty cashier.
Petty Cash Book
In a business house a number of small payments, such as for telegrams, taxi fare, cartage, etc., have to be made. If all these payments are recorded in the cash book, it will become unnecessarily heavy. Also, the main cashier will be overburdened with work. Therefore, it is usual for frms to appoint a person as ‘Petty Cashier’ and to entrust the task of making small payments say below Rs 25, to him. Of course he will be reimbursed for the payments made. Later, on an analysis, the respective account may be debited.
The advantages of the imprest system are as follows:
- It saves the time of the chief cashier.
- Petty cashier is not allowed to keep idle cash with him if the float is found to be more than adequate; its amount will be immediately reduced. This reduces the chances of misuse of cash by the petty cashier.
- The record of petty cash is checked by the cashier periodically, so that a mistake, if committed, is soon rectified.
- It enables a great saving to be effected in the posting of small items to the ledger accounts.
- The system trains young staff to handle cash responsibilities.
Petty Cash Book may be treated either as a part of the double entry system or merely as a memoranda book. If the former course is adopted, each payment to petty cashier is shown on the credit side of the main Cash Book which is considered to have been balanced by a debit entry in the petty cash book. The two entries are folioed against each other completing the double entry aspect. Payments recorded in the Petty Cash Book are directly posted to the different nominal accounts. Of course, entries for expenses are made only with the periodical totals of expenses under various heads. If the latter course is adopted, for amounts paid to petty cashier, petty cash account in the ledger is debited besides entering the amounts (paid to petty cashier) on the credit side of the main cash book. Periodically, different nominal accounts are debited and the petty cash account is credited in ledger for expenses recorded in Petty Cash Book
Imprest System of Petty Cash
It is convenient to entrust a definite sum of money to the petty cashier in the beginning of a period and to reimburse him for payments made at the end of the period. Thus, he will have again the fixed amount in the beginning of the new period. Such a system is known as the imprest system of petty-cash.
The system is very useful specially if an analytical Petty Cash Book is used. The book has one column to record receipt of cash (which is only from the main cashier) and other columns to record payments of various types. The total of the various columns show why payments have been made and then the relevant accounts can be debited.
- (i) The amount fixed for petty cash should be sufficient for the likely small payments for a relatively short period, say for a week or a fortnight.
- (ii) The reimbursement should be made only when petty cashier prepares a statement showing total payments supported by vouchers, i.e., documentary evidence and should be limited to the amount of actual disbursements.
- (iii) The vouchers should be fled in order.
- (iv) No payment should be made without proper authorization. Also, payments above a certain specified limit should be made only by the main cashier.
- (v) The petty cashier should not be allowed to receive any cash except for reimbursement.
In the petty cash book the extreme left-hand column records receipts of cash. The money column towards the right hand shows total payments for various purposes; a column is usually provided for sundries to record infrequent payments. The sundries column is analysed. At the end of the week or the fortnight the petty cash book is balanced. The method of balancing is the same as for the simple cash book.