Petty Cash Book is a book that records a large number of small payments such as conveyance, cartage, postage, telegram, and other expenses. These expenses occur very frequently in an organization and it becomes very difficult for the main cashier to accommodate them in the main Cash Book.
Features of Petty Cash Book
- Cash received from the main cashier is recorded on the left-hand side column.
- Payments of petty cash expenses are recorded on the right-hand side in the respective column.
- There can never be a credit balance in a petty cash book as the cash payments can never exceed the cash receipts.
- The balance of such a cash book represents unspent cash in hand.
- Both internal and external vouchers are used as a base for recording, In case, external vouchers are not available petty cashiers may use duly authorized internal vouchers.
- All the columns of the expenses are totaled from time to time and such periodic totals are posted to the respective debit side of the Expense Account.
Systems of Petty Cash Book
Under the imprest system, the chief cashier makes the reimbursement of the amount spent by the petty cashier, this
makes the closing balance of Petty Cash Book the same as the opening balance. The amount that the main cashier hands over to the petty cashier is known as imprest or float. The features of it are:
- Estimation by Chief Cashier: The chief cashier estimates the total petty cash expenses for a fixed period.
- Advances by Chief Cashier: Chief Cashier advances the estimated amount to the petty cashier at the beginning of the period.
- Submission of Petty Cash Book by Petty Cashier: The petty cashier submits the supporting vouchers to the chief cashier.
- Examination of Petty Cash Book by Chief Cashier: After preparation of Petty Cash Book, the chief cashier examines the Petty Cash Book.
- Availability of Same Amount of Petty Cash: The balance of the Petty Cash Book is the same amount at the beginning of new period as that in the end.
Under Non-Imprest System, the chief cashier may hand over the cash to the petty cashier equal to/more than/less than the amount spent by the petty cashier. Thus the closing balance may be or may not be the same as the Opening Balance.
Types of Petty Cash Book
Simple Petty Cash Book
It is identical to a Cash Book. Any cash which a petty cashier receives is recorded on the left-hand side cash column (debit or receipts side) and any cash which he pays out is recorded on the right-hand side (credit or payments side).
Analytical or Columnar Cash Book
It has two sides, the left-hand side is used for recording receipts of cash (this will be from the main cashier), and the right-hand side, which is used for recording payments. In it, a separate column is provided for recording a particular item of expenditure i.e. postage, stationery, traveling, advertisement, etc. A column is also provided for sundries or miscellaneous expenses.
Advantages of Petty Cash Book
- Saving of Chief Cashier’s Time: In case, the petty expenses are recorded in the petty cash book then the time of the chief cashier is saved.
- Reduction in Mistakes: As the chief cashier regularly examines the cash book the chances of mistakes are reduced to a minimum.
- Low Probability of Fraud: Defalcation of cash can be minimized since the petty cashier is not allowed to draw cash as and when he desires.
- Specialisation in Work: The chief accountant can obtain the benefits of specialization as the transactions are recorded in two separate books. The main cash book and the Petty cash book.
- Reduction in Petty Expenses: Petty cash expenses are to be kept within the limits of imprest as the petty cashier can never spend an amount that is more than available petty cash.
- Labour Cost in Posting of Transactions is saved manifold: This saving takes place because of below mentioned two reasons:
- The number of accounts opened under the head petty expenses is limited.
- Periodically the balances of various accounts are to be transferred to their respective heads.
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