This way the chances of making frauds and embezzlements become very difficult. The chief cashier is not required to deal with petty disbursements. He can concentrate on cash transactions involving a large amount of cash. It saves time and labor and helps the chief cashier to discharge his duties more effectively. As a result, it might be challenging for companies to keep up to date with the expenses and ensure that they can properly maintain a ledger listing all individual accounts for the expenses incurred. During the normal course of operations, numerous financial transactions are taking place within the company.
- Like a general cash book, a petty cash book has a debit and a credit side.
- Some examples of petty cash expenses include stationery costs, printing costs, and regular plumbing works.
- Therefore, it is a good idea to have a monthly round-up of expenses paid by the company so that a proper balance is maintained in the company.
- The petty cashier is empowered by the management to spend money from this fund as per the specified rules of the company.
A petty cashier is responsible to prepare and maintain the petty cash book. The petty cashier is the only one who is authorised for payment of cash vouchers. To avoid this, large organizations normally appoint one more cashier (petty cashier) and maintain a separate https://turbo-tax.org/tax-withholding/ cash book to record these transactions. Such a cash book maintained by the petty cashier is called a petty cash book in accounting. If all these payments are handled by the cashier and are recorded in the main cash book, the procedure is found to be very cumbersome.
Petty Cash Book: Types, Diagrams & Examples
If they record petty expenses in the main cash book, then both the chief cashier and the main cash book will be overburdened. The petty cash book is a useful control over petty cash expenditures, since it forces the petty cash clerk to formally record all cash inflows and cash outflows. The petty cash book is a recordation of petty cash expenditures, sorted by date. In most cases, the petty cash book is an actual ledger book, rather than a computer record. The petty cash book has declined in importance, as companies are gradually eliminating all use of petty cash, in favor of using company credit cards.
Imprest systemThe word “imprest” means – A fund that a business uses for small expenditures and usually restores to a fixed amount after a period of time. Imprest system refers to paying an advance at the start and reimbursing the amount spent from time to time. Ordinary systemAs part of the normal process of petty cash management, the petty cashier receives an appropriate amount of money. The petty cashier prepares a statement of petty cash expenditure and sends it along with all petty cash receipts to the cash department. The petty cashier is to use a printed payment receipt containing a serial number for cash head of expenditure. For this purpose, a cheque is given to the petty cashier for a definite sum of money by the company.
Petty Cash Protocol
A petty cash book is just as its name suggests a book which is used for the purpose of recording small amounts of expenses in a business. A simple petty cash book looks like a cash book with two main columns (left for receipts & right for payments). Simple petty cash bookA simple petty cash book is one which there is only one amount column on its both sides with common date and particular columns.
The amount column tracks the monthly balance they allocate to petty cash expenses. A triple-column is an extended version of the double-column cash book. Along with columns for cash and bank, it includes a third column for writing down the discounts. The discount column shows the amount of discount paid or received on any cash or bank transaction. Enter the following transaction into a petty cash book with these headings.
Imprest System of Petty Cash
This voucher must be authorized by a responsible officer before the petty cashier makes the payment. Under the fixed system of petty cash, a fixed amount is given to the petty cashier for a fixed period of time. In all businesses, some payments are made by check for better control over cash. However, for the payment of small expenditures (e.g., stationery, travel, postage, and newspapers), paying by check is unreasonable. On the other hand, a Cash Receipts Journal, also known as a Cash Inflow Journal, records all cash the organization receives. It includes cash sales, customer payments, interest income, and other sources of cash inflows.
At the end of the month the petty cashier would obtain a reimbursement of expenses incurred during the month, after which the petty cash float would be restored. It is a system where a reimbursement is made of the total amount paid in a period or it can also be called as a system where petty cashier begin each new accounting period with the same amount of petty cash. It has just one column each for debit and credit for writing down all the cash transactions.
Following is the Receipts and Payments Account of Bharti Club …
Therefore, in the beginning of every period, the balance b/d in the petty cash book under imprest system is the same. It’s a cash book used to enter daily petty expenses like cost of stationery, postage and Xerox copy and so on. The petty cash book will be maintained by a
separate cashier known as petty cashier in the accounting field. Credit side consists of more analysis
columns in the petty cash book. In a company the level of cash that the petty cashier should possess would be determined by the management. This is called the “Petty cash float.” Using this float the petty cashier would incur the expenses during the month.
Is the petty cash book an asset?
Explanation: The balance of a petty cash book is an asset as it is treated as a current asset. Having any remaining balance or unused balance from the petty cash fund also becomes an asset because the business has saved the money from being spent.
The bank column represents the money you deposit or withdraw from your bank account. There are numerous reasons why a business might record transactions using a cash book instead of a cash account. Mistakes can be detected easily through verification, and entries are kept up to date, as the balance is verified daily. By contrast, balances in cash accounts are commonly reconciled at the end of the month after the issuance of the monthly bank statement. As a result, companies keep and maintain a petty cash book, so all such transactions, which are small or insignificant in nature, can be recorded under one head.
What items are in a petty cash book?
A petty cash book is maintained to record small expenses such as postage, stationery, and telegrams. A separate column is used for each type of expenditure. 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.