At the beginning of a new period, the money is replenished when it has been spent. 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. If any alteration of established petty cash fund is not required, the new journal entry is not needed. In this way, at the beginning of every month, the petty cashier will possess $500 as an imprest fund to meet up day to day expenditures. A somewhat more useful format is to record all debits and credits in a single column, with a running cash balance in the column furthest to the right, as shown in the following example.
In such cases, the petty cashier is to furnish a requisition for the new fund. Every business organization is to pay cash for various day-to-day petty expenses such as a pencil, rubber, paper, ink, pen, conveyance, telephone, postal stamp, revenue stamp, etc. The head cashier after proper verification of the expenditures pays an amount equal to the amount spent by the petty cashier again in advance to equalize the prefixed fund of the petty cashier. At the end of the period, the petty cashier submits to the head cashier a statement of expenditures incurred by him. The difference between the amount of cash receipt and the total amount of cash payments is called balance. To ascertain the total amount of money spent the total money column is used on the credit side for recording all expenses.
Open or Ordinary System of Petty Cash
In some cases, the amount of expenditure is so small that issuing a cheque for it is quite inconvenient and unnecessary. This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content.
The head cashier does not have any problem to know the exact cash of the petty cashier as a fixed amount of cash always lies with the petty cashier. The head cashier before funding again examines the previous expenses. Thereby the possibility of fraud and forgery is removed and there remains control over expenses.
Making payments from funds
Separate columns are used for each expense in ‘Analytical petty cash book’. Petty cash books are small cash books which record day to day minor business expenditures. Minor business expenditures include newspaper, fuel, casual labour etc. The petty cashier prepares a statement of petty cash expenditure and sends it along with all petty cash receipts to the cash department. When a petty cash fund comes down to a minimum limit, it is replenished for the spent money.
- The person responsible for spending petty cash and recording it in a petty cash book is known as petty cashier.
- In addition, the chief cashier in a large business is required to handle numerous large transactions on a daily basis.
- A simple type of petty cash book is one that is maintained simply with the help of 2 primary columns, one for receipts (left) and one for payments (right).
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- For this purpose, he is given a small amount and a separate book to record these small payments.
The cash allocated for petty expenditures for a specific period is entered on the credit side of general cash book and on the debit side of petty cash book. Therefore, the total debits in the ledger agree with the credit in the main cash book. In other words, the petty cash book does not form a part of double-entry bookkeeping. If they record petty expenses in the main cash book, then both the chief cashier and the main cash book will be overburdened. A petty cash book also refers to the book in which small payments are recorded, which are not convenient to record in the main cash book. This column is used for expenses that are insignificant and do not fall under any other columns of commonly occurring expenses in the analytical petty cash book.
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To solve these problems, the chief cashier delegates responsibilities to another senior staff member to account for day-to-day small transactions. Journal entry posted in the Postage account on the debit side by writing “To Petty Cash A/c”. Journal entry posted in the Cartage account on the debit side by writing “To Petty Cash A/c”.
The petty cash book is a book of vouchers which are made each time an expense is made from petty cash (money). Always the voucher would show the amount,
purpose, recipient, general ledger account number and date relating to the expenses. If person receiving the petty cash and the person giving out the petty
cash would sign the voucher and any supporting certification (such as revenue) would be involved.
Type 1 – Simple Petty Cash Book
In the debit money column, the amount of cash received from the head cashier is written. To save the valuable time of the head cashier, to enable him to work comfortably and to avoid making the cash book unnecessarily voluminous petty cash system is introduced. 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. 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.
Advantages of Imprest Petty Cash Book
Record the following transactions in a simple petty cash book for the month of January 2019. Ledger entry for each expense is not directly posted instead a petty cash account is maintained in the firm’s ledger. From the following information please show an analytical petty cash book (using the Imprest system) for the 1st week of Feb YYYY. From the following information please show a simple petty cash book for the 1st week of Feb YYYY. The petty cash book is to enter how the cash available for daily expenses are spent for example milk, tea, taxi charges and postage. A petty cash is a cash book used to enter all small or petty expenses obtained.
