An Introduction

The petty cash book is the record of petty cash expenditures that are sorted by date. In most cases, this petty cash book is a ledger book and not a computer record. This book is a part of the manual record-keeping system in the accounting department. There are two primary types of entries in the petty cash book 

  • Which is a debit to record the cash that is being received by the petty cash clerk, which is usually in a single block of cash at infrequent times.

  • A large number of credits reflect the cash withdrawals from the petty cash fund, which are such transactions as payments for meals, flowers, office supplies, stamps, and henceforth.


Imprest System of Petty Cash

The imprest system of petty cash means the general ledger account. Petty Cash is to remain dormant at a constant amount. Suppose, the amount of petty cash is Rs.1000, then the Petty Cash account will report a debit balance of Rs.1000. This Rs. 1000 is known as the imprest balance. If the Rs. 1000 is sufficient for the organization's small disbursements, then the general ledger account Petty Cash will never be debited or credited once more.

As the currency and coins on hand decrease, then the petty cash custodian will request a check to replenish the coins and currency that were being disbursed. Since the requested check is drawn on the business's checking account. The Cash account is to be credited and the debit will go to the expense account as indicated by the petty cash receipts, like the postage and supplies expenses. 


Types of Petty Cash Book

Generally, there are two types of Petty Cash Book:

  1. Columnar Petty Cash Book.

  2. Imprest Petty Cash Book.

Columnar Petty Cash Book

To vividly know about Columnar Petty Cash Book, we will point the following statements:

  • Columnar petty cash books consist of many money columns which record daily expenditures. This Petty Cash Book has two sides – the debit side and the credit side.

  • The particulars of cash receipts and expenses are written together in a single column which is known as the particulars column and the other column is used for writing the dates of both debit and credit.

  • In the debit money column, the amount of the cash is received from the head cashier which is written.

  • The credit side also contains many money columns as per the requirement for recording the expenses and then the expenses are chronologically recorded in a classified way.

  • To compute the total amount of money that is spent the total money column is required on the credit side for recording all the expenses.

Imprest Petty Cash Book

Details about Imprest Petty cash book can be enunciated in the following points:

  • As mentioned earlier, Imprest Petty Cash Book contains many money columns which are recorded on the credit side and one money column on the debit side and a particular column, and a date column which is also similar to that of the columnar or the analytical petty cash book.

  • Under this system of petty cash book, the head cashier provides a fixed amount of money to the petty cashier in advance for making the expenditure for a particular period.

  • At the end of the period, the petty cashier submits to the head cashier a statement of expenditures that are incurred by him.

Example

On 1st of Jan. 2004 head cashier paid Rs. 5000 to the petty cashier in advance. In January, the petty cashier spent Rs. 4000 and submitted a statement of expenditure for the spent amount to the head cashier.

The head cashier then pays him again Rs. 4000 for meeting the expenditure of February.

The petty cashier starts his petty cash book on 1st February with a cash balance of Rs. 5000.

In this way, at the beginning of every month, the petty cashier will possess Rs. 5000 as an interest fund to meet up the daily expenditures.


Explanation of Petty Cash Book

The majority of companies make payments via check or online banking. As for small expenditures such as stationary, bus fares, cleaning, casual labour, etc., writing checks is unreasonable. But they should be documented. So, in order to keep track of these daily transactions, a petty cash book was introduced. It’s a book that keeps track of every small expenditure of the company cash. The funds used for small payments are known as petty cash and the person whose job is to make and record those payments is known as a petty cashier. In most cases, it’s a ledger book and not a computer record.  It’s a collection of accounts that record account transactions. Also, prepare the financial statements by providing the required information.

A petty cashier can receive cash in an open system, a fixed system or by imprest. These are the systems used to distribute cash among cashiers.

  1. Open System: The cashier receives small amounts for petty expenses. After spending them all, they submit receipts to the cashier, who then pays them more.

  2. Fixed System: In this system, cashiers are provided with a fixed amount for a specified period.

  3. Imprest System: The petty cashier is given a fixed amount for an agreed period. The amount of cash spent by the petty cashier during the period is reimbursed to him. In addition, the amount of cash available for spending at the beginning of the next period becomes equal to the original amount.


Benefits of Petty Cash Book

Petty cash books are beneficial in numerous ways not only for big companies but small companies as well. It’s a simple process. Petty cashiers handle all small transactions, which allows the main cashier to focus on major transactions of the company. Also, keep track of all small financial details and provide information quickly as needed. The petty book helps prevent fraud and error since it is checked regularly and reported promptly. Maintaining separate books for small finances reduces the volume of the general book and prevents things from getting mixed up. The chief cashier double-checks expenses accounts before making payment petty expenses since they are charged to an individual rather than a department. Create jobs for unemployed people and offer learning opportunities for junior staff.

It’s helpful and can also be used to gain control over petty spending. But it makes it harder to keep track of which may waste funds or can be used for unauthorized expenses.


About of Petty Cash Book

Petty Cash Book is one of the topics covered under the chapter 'Recording of Transactions' in CBSE class 11 accountancy. A student who is interested in pursuing a career in accounting must understand this topic thoroughly. In addition to the numerical problems, there are also some theoretical elements involved. To prevent money loss, one must be familiar with how to keep a petty cash book. The subject is a fundamental part of commerce and is an essential skill. Students with high mathematical and analytical skills are more likely to be interested in business and finance. Having a working knowledge of accounting can be beneficial to you personally as well.

FAQs (Frequently Asked Questions)

1. Is the petty cash book an important part of accounting?

The petty cash book is a record of the petty cash expenditures, which are sorted by date. Generally, the petty cash book is a real ledger book that is a part of the manual record-keeping system. A petty cash book is quite necessary to create and facilitate small payments in a business or an organization. It places and recognizes the expenditure for items such as postage and stamps, bus fare, and stationery expenses as well. The petty cash book is meant to meet the day-to-day expenses and thus is entrusted in the hands of a petty cashier.

2. What is a ledger book?

A ledger is a book that contains accounts in which the accounts are classified and summarised information from the journals and is posted as debits and credits. This is also called the second book of entry. The ledger contains the information which is required to prepare the financial statements. A ledger represents the record-keeping system of the financial data of the company. Each small transaction that a person makes is recorded in a ledger book. A better way to keep track of all the money employees spends is to use a spending log.

3. What is the use of petty cash funds?

Petty cash fund is to make the payments for small amounts that are less material, such as postage, small repairs, or day-to-day supplies. A petty cash account is an imprest account, hence, it is only debited when the fund is established or increased in the amount. The fund works on the imprest system, where there is an initial amount of money that is put into an account, that is drawn upon for a specific purpose. When the same account goes below a certain specified amount, the system is used up.

4. What are the cons of petty cash books?

The cons of petty cash books are as follows-

  1. As I mentioned It will be hard to keep track of every small detail which may lead to money loss and unauthorized expenses.

  2. Because of lack of control funds may be misused by the workers or co-workers.

  3. It may also show some accounting errors because of no sufficient document for tracking cash.

  4. Engaging money in non-business-related activities. It means employees can use the money for personal use rather than official purposes.

5. What are the types of cash books?

The types of cash books are-

  1. Single column cash books: The entry and posting of cash transactions are made by hand.

  2. Double column cash books: It’s similar to a single column cash book except it has two amount columns on both the debit and credit card.

  3. Triple column cash book: It contains three columns. One for discount, second for cash, and the third for the bank.

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