Petty Cash Book 

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Welcome to class! 

In today’s class, we will be talking about the petty cash book. Enjoy the class!

Petty Cash Book 

By the end of the lesson, you should be able to;

• Regurgitate the meaning of petty column cash book
• Explain the concept of Imprest system
• Demonstrate the concept of reimbursement
• Prepare a typical petty cash book

The petty cash book

This is the subsidiary book of account that is used for recording low-value (petty) cash payments (and occasional small cash receipts). These may include small incidental expense such as postages, stationery, cleaning, travelling expenses and even small cash payments to creditors

The petty cash book is similar to the Cash Book in that it serves the dual purpose of the book of prime entry and since it is part of the double-entry system, it is also a ledger account. Maintaining a Petty Cash Book means that it is not necessary to record small cash payments individually in either the Cash Book or the ledger. This reduces the number of entries in these books.

The task of maintaining a Petty Cash Book is often given to a junior member of staff who is given an amount of cash to act as a float from which to make small cash payments. This allows the chief cashier (main cashier) to concentrate on more important tasks and also provides valuable training for a junior member of staff. The chief cashier must check the work of the petty cashier at regular intervals.

When a member of staff wishes to obtain some petty cash, he/she should present the petty cashier with a completed and duly authorized petty cash voucher. This should show the purpose for which the money is required the date and the signature of the person receiving the cash. At regular intervals, the petty cashier should check these vouchers against the total cash spent

The imprest system

In most organizations, the Petty Cash Book is maintained using the imprest system. The imprest system operates when the main cashier gives the petty cashier enough money that is sufficient to cover petty expenses for a given period of time e.g. a week or a month. Under the system, the petty cashier starts each period (week, fortnight, month etc.) with a fixed amount of money known as the imprest amount or the cash float.

During the period, payments are made out of the cash float and are recorded in the Petty Cash Book. At the end of the period, after the Petty Cash Book is balanced, the main cashier will provide the petty cashier with enough cash to restore the balance to the amount of imprest (cash float). The petty cashier, therefore, starts each period with the same amount of cash

Under the imprest system, the main cashier is aware of exactly how much petty cash has been spent in each period. The amount of imprest can be adjusted as necessary if it is too much or not enough.

Features or characteristics of the imprest system

1. Selection of a petty cashier
2. A fixed sum of cash (i.e. the imprest amount or cash float) will be given to the petty cashier by the main cashier
3. The petty cashier pays the various petty cash disbursement against duly authorised petty cash vouchers.
4. The main cashier reimburses the petty cashier with the total amount paid for the period thereby restoring the imprest to its original figure.

Advantages of the imprest system

1. The burden of the main cashier will be greatly reduced
2. It serves as training for young account clerks
3. It ensures accountability for every expenditure since all expenses are supported by documentary evidence
4. It helps to eliminate/discourage fraudulent practices
5. It reveals extravagance and items of expenditure that over-shoots the budgeted amounts
6. The totals of each item of expenditure can be used as a basis for making cost control decisions
7. Liability of the petty cashier can never exceed the imprest amount
8. It relives the main Cash Book and the general ledger accounts of entries of a large number of small (insignificant) items
9. The main cashier can exercise considerable control in that the imprest system is subject to check at any time, for the cash then in hand of the petty cashier plus the amount spent in the period according to the vouchers should always equal the cash float
10. Loses through the petty cashier can be minimized

The layout of a petty cash book

A Petty Cash Book resembles a ledger account with several money columns on the credit side. These are known as analysis columns and are used to divide the payments into different categories. A column is used for each of the main types of expenses paid out of petty cash. Instead of a folio column on the credit side, there is a column for recording the number of the voucher to which the payment relates.

The number of columns and the main types of expenses will be determined by each individual business. In examinations, guidance is given regarding the columns required.

A layout of a Petty Cash Book is shown as follows:

PETTY CASH BOOK

Date	Details	F	Total received	Date	Details	Total paid	Voucher number	Transport	Cleaning	Postage	Ledger
			N			N		N	N	N	N

Evaluation

1. List five features of the Imprest System
2. State seven advantages of keeping the Petty Cash Book on the imprest system

Preparation of the petty cash book

1. During the period
2. Money received or Balance brought down

• Debit the total received column with any money received from the main cashier (or the balance brought down from the previous period).

Insert the word ‘cash’ or ‘bank’ or ‘balance b/d’ in the details column as appropriate.

• Debit the total received column with any money received from any other source. Insert the name of the account to be credited in the details column e.g. the name of a debtor (where a debtor pays an account in cash), travel expenses (where an employee reimburses the petty cash for private travel expenses) telephone expenses (where an employee reimburses the petty cash for private telephone calls), and so on.

 

2. Money Paid

Credit the total paid column with any money paid out and also enter the amount in the analysis column for that particular expense. A brief description of the reason for the payment should be entered in the details column.

 

1. At the end of the period
2. Add the total paid column. Insert the total
3. Add each of the analysis columns and insert the totals. If these totals are then added horizontally, they should agree with the total paid column. The analysis column is now complete.
4. Balance the total received column and the total paid column in the same way as balancing any other ledger account. Carry down the balance from the credit side to the debit side to start the new period.
5. When the imprest is restored enter as described earlier
6. Complete the double entry for the totals of the analysis columns

• The totals of the analysis columns for each expense should be debited to the relevant expense account in the general (or nominal) ledger. To indicate that the double-entry has been completed the folio number of the relevant expense account is often written below the total of the appropriate analysis column in the petty cash book.

 

1. The end column of the Petty Cash Book has been chosen as a ledger column. In this column, items paid out of petty cash which need posting to a ledger other than the general ledger are shown. This would happen if a purchases ledger account was settled out of petty cash or if a refund was made out of the petty cash to a customer who had overpaid his account.

 

To complete the double entry for items in the ledger column in the Petty Cash Book, the purchases ledger account of the creditor should be debited (or the sales ledger account of the customer (the debtor) should be debited) as explained above.

Illustration

L.Mahmoud keeps an analyzed petty cash book using the imprest system. The amount of imprest is N1,500. She provided the following information for the month of May 2017.

May 1 Received from the cashier N1, 500 as petty cash float

5          Paid window cleaner N100

8          Bought pen and pencils N40

14        Paid H. Adamu, a creditor N200

17        Paid taxi fare N90

21        Bought computer paper N70

25        Paid bus fares N30

27        Paid A. Shuwa, a creditor N340

30        Paid office cleaner N350

Required

• Prepare Mahmoud’s Petty Cash Book for the month of May 2017.

The Petty Cash Book should have four analysis columns – cleaning, stationery, travel expenses and ledger accounts

• Balance the Petty Cash Book on 31^st May 2017 and carry down the balance. Show the restoration of the imprest on 1^st June 2017
• Make the necessary entries in Mahmoud’s nominal (general) ledger and purchases ledger on 31^st May 2017

 

NB: The Petty Cash Book is a double entry book and must be included in the Trial Balance. The maximum level of cash held in the petty cash book is fixed and the cashier must be reimbursed for the amount he has paid out. The source documents for recordings in the Petty Cash Book are the receipts, cheques and Petty cash vouchers duly authorized by the designated officers.

Evaluation

1. Business Accounting 1. Exercise 21.1 and 24.4A
2. Simplified and Amplified Financial Accounting Exercise 5x, 6x, 7x

Reading assignment

1. Simplified and Amplified Financial Accounting Page 81-88
2. Business Accounting 1 Page 226 – 231

General evaluation

1. State four features of the Petty Cash Book
2. List five source documents that are used in preparing the Petty cash Book.
3. Explain the operation of the Imprest System of keeping a record of petty cash transactions.
4. State five advantages of using the Imprest system to keep petty cash records
5. List ten uses of the General Journal

Weekend assignment

1. Which of the following demonstrates the imprest system float  expenses paid  cash at bank   float    B. float  cash from bank  expenses paid  float    C. float  expenses paid  cash from bank  float    D. float cash in bank  expenses paid  float
2. A cashbook had an opening balance of N15, 200, closing balance N18, 400 and total cash received during the period N36, 000. What was the amount of cash paid out during the same period N17, 800    B. N19, 600    C. N29, 200    D. N32, 800
3. In a petty cash book, the closing balance was N235, imprestN1, 250, while stationery expenses were N How much was paid for other general expenses N360 B. N355    C. N350      D. N305
4. An analytical cash book is used to indicate sources of cash received   B. categorize petty cash payment   C. separate cash and bank balance    D. analyse amount due from debtors
5. The maximum level of cash held by a cashier under an imprest system is a/an vote   B. float   C. reimbursement    D. advance

Theory

1. What are books of prime entry
2. List any five books of prime entry
3. Explain the following

• Petty Cash Book
• Imprest System

 

In our next class, we will be talking about Accounts: Meaning and Classifications.  We hope you enjoyed the class.

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