Petty Cash Book

 

1.0 INTRODUCTION

In this note, you shall learn about Petty Cash Book, the Imprest System and how recording and posting in the petty cash book are made.

2.0 OBJECTIVES

After studying this note, you should be able to:

• Explain petty cash book

• Explain imprest system

• Prepare petty cash book and post it into ledger.

3.0 MAIN CONTENT

3.1 Petty Cash Book

You have so far learnt that all cash receipts and payments are recorded in the cash book. In practice, you will find that almost in every business there are many small payments in cash such as stationery, postage, telegrams, cartage, conveyance, etc. If all these small payments are also recorded in cash book, the cash book will become bulky, and the cashier will also be overburdened with work. In order to reduce the burden on the cashier, a separate book called Petty Cash Book is maintained for recording all such small payments. A petty cashier is appointed for this purpose. He is paid a certain sum in advance. He keeps on making small payments out of this advance and records them in the Petty Cash Book. The amount of money given to petty cashier is called petty cash..

3.2 Imprest System

Generally, petty cash book is maintained on Imprest System. Under this system an estimate is made of the amount required for small payments for a certain period, say, a week or a month and this amount is paid to the petty cashier in advance. The petty cashier makes the small payments and records them in the Petty Cash Book. All such payments are supported by vouchers or receipts. At the end of the period, the petty cashier submitted the account to the Chief Cashier. The Chief Cashier examines the account and pays to the petty cashier the amount spent by him so that at the beginning of the next period again he has the same amount as he had in the beginning. This system of advance is called the "Imprest System" and the amount given is known as the Imprest Money'. 

For example, on April 1, N300 is given as advance to the petty cashier. He spends N260 during the month and submitted to the account along with the vouches to the Chief Cashier. After verifying the account, the Chief Cashier pays him N260. Thus, on May 1, the petty cashier again has N300 with him. The amount to be given to the petty cashier, that is, imprest Money, should be carefully determined. It should neither be too large nor too small, it should be sufficient to make small payments for the fixed period.

3.3 Recording and Posting the Petty Cash Book

As you will observe in the illustration 1, the Petty Cash Book has a number of columns. The extreme left-hand column records the receipts of cash. But on the payment side a separate column is provided for each expense, such as postage, telegrams, stationery, cartage, wages, conveyance, etc. This facilitates the analysis of payments under different headings and also helps in posting to the concerned accounts. The number of columns depends upon the nature and size of the business. 

The columns provided for different expenses generally are: (i) Printing and Stationery, (ii) Postage and Telegrams, (iii) Cartage (iv) Conveyance, (v) Entertainment and (vi) Sundry Expenses.

When the petty cashier receives money from the Chief Cashier, he records it in the particulars column of the Petty Cash Book by writing "To Cash Account" (if he receives cash) or "To Bank Account" (if he receives a cheque) and records the amount in receipts column. When payment is made, it is entered in the particulars column by writing the name of the expenses incurred. The amount is first recorded in the 'total payment' column and then in the relevant column provided for it. 

The Petty Cash Book is balanced periodically. The difference between the total receipts and total payments is the balance with the petty cashier. This balance is carried to the next period and the petty cashier is paid the amount actually spent by him. Thus, you will note that the procedure of.99

balancing the Petty Cash Book is the same as you have adopted in the case of ordinary cash book. 

A 'Petty Cash Account' is opened in the ledger. It is debited with the amount given to petty cashier. When Petty Cash Book is balanced, each expense account is individually debited with the periodic total as per the respective column by writing 'To Petty Cash Account' and the 'Petty Cash Account' is credited with the total expenditure incurred during the period by writing 'By Sundries as per Petty Cash Book'. The Petty Cash Account is then balanced. It normally shows a debit balance, which will be equal to the actual cash with the petty cashier.

Look at illustration 1. It shows the recording of Petty Cash Book and post them into ledger. 1988		N : 00
Jan 1 Received cash from Chief Cashier	300 :		00
Jan 2 Paid for postage	25 :		20
Jan 3 Paid stationery	10 :		50
Jan 5 Paid conveyance to clerk	10 :		20
Jan 6 Paid telegram	12 :		40
Jan 8 Paid for ink	6 :		10
Jan 9 Paid for tea for customers	5 :		00
Jan 10 Stamps purchased	13 :		00
Jan 12 Purchased pens	20 :		00
Jan 14 Paid for trunk calls	27 :		00
Jan 15 Paid cartage	8 :		00
Jan 16 Paid for taxi fare	43 :		00
Jan 17 Purchased soap	5 :		60
Jan 18 Paid for typewriting paper	40 :		00
Jan 19 Cartage paid	10 :		00
Jan 20 Bus fare paid to clerk	8 :		20
Jan 21 Paid to coolie	10 :		50
Jan 22 Tips to peon	5 :		00
Jan 23 Purchased registers	20 :		00
Jan 28 Rickshaw charges	2		: 50
Jan 30 Paid for cold drink for customers	7		: 50

February, 2002 N : K

Feb 1 Balance brought forward

- Cash in hand 1,256 : 00

- Bank balance 78,600 : 00

Feb 4 Purchased goods for cash 1,000 : 00

Feb 5 Cash withdrawn for office use 20,000 : 00

Feb 6 Purchased office furniture on credit from

F.F. Furniture 7,000 : 00

Feb 8 Sold goods on credit to Taiwo, N250; John N400;

Okon N200; and Musa N800

Feb 11 Cash sales banked 4,000 : 00

Feb 14 Paid F.F. Furniture by cheque less 5% discount

Feb 15 Drew cash from bank for personal use 500 : 00

Feb 20 The following persons settled their accounts by

Cheques in each case deducting 5% discount

1. Taiwo and 2. John

Feb 22 Okon and Musa settled their accounts by cash

After deducting 5% discount

Feb 23 Cash sales 2,500 : 00

Feb 28 Purchased goods for cash, discount

received N80 720 : 00

4.0 CONCLUSION

All cash transactions are recorded in the Cash Book. There are various types of Cash Books, they are (i) Single Column Cash. Book (ii) Double-Column Cash Book (iii) Three-Column Cash Book and (iv) Petty Cash Book.

The transactions made by the Petty Cashier are recorded in a multi-column cash book that analyzes the nature of the expenses or payments made by the cashier. This type of Cash Book is called an Analytical Petty Cash Book or simply Petty Cash Book.

5.0 SUMMARY

A Petty Cash Book can also be prepared for recording payments of various petty expenses. Petty Cash Book is maintained on Imprest System, which means advancing of fixed amount to the petty cashier.

The maintenance of Petty Cash Book saves a lot of labour and time.

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