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Petty Cash Book

Almost all businesses make available a small fund called petty cash for a particular purpose which is to pay for minor miscellaneous expenses such as postage stamps, office beverages, travelling expenses and other small payments and purchases of small value. It is obviously not advisable for all these small payments to be entered in the main cash book which should be reserved for less numerous and bigger payments. A separate book is therefore necessary to record the minor transactions.

The amount of the petty cash fund varies with the need for it. For a small business, a small amount is likely to suffice. It should be of a specific amount that is just sufficient to avoid the inconvenience of frequent replenishment. A periodic replenishment of three to four weeks should be most suitable. The fund is replenished when a request is made for it, usually when the cash is getting low. Upon request, a cheque is issued and cashed for the replenishment.

The responsibility to manage the petty cash is assigned to a member of the office staff called petty cashier who ensures the money is safely kept in a locked cash box. Whenever someone requests for petty cash, the petty cashier prepares a petty cash voucher by writing on it the date, the recipient of the cash, amount and the purpose of the cash. The person issuing the voucher and the person receiving the money both initial on the voucher. Vouchers are numbered in sequence and are issued in that order. After the money is used, the receipts or supporting documents are returned for attachment with the voucher.

Petty cash book

The transactions on the petty cash vouchers are recorded in the petty cash book. The petty cash book has columns to categorize the different types of expenses. It has both debit and credit columns. The first column on the left or debit side is recorded with the regular replenishments received for the petty cash fund. On the credit side, there are several columns, the first of which is a total column in which is recorded every amount spent while the other columns are for expenses, with each column for an expense item.

Recording and balancing the petty cash book

Every payment made is entered in the total column and again in the appropriate expense column. At the end of each period, every column in the petty cash book is added up. The total of all the expense columns must agree with the total column. The difference between the total column and the total of the column on the debit side is the petty cash in hand. This cash in hand is reconciled to the petty cash in the cash box. They must tally.

Posting to the ledger

  • Whenever petty cash is reimbursed, debit Petty Cash Account and credit Bank Account.
  • Debit each expense column total in the petty cash book to the correct expense account in the general ledger.

Treatment of petty cash on the financial statements

The petty cash balance appears on the balance sheet as a current asset. It is included in the closing balance of the cash account on trial balance and the balance sheet.


Imprest system

This is a common system used in petty cash management. Whenever a request is made to replenish the petty cash, a check is issued for the amount that is equal to all the money that has been spent so that the original amount of the fund is restored. In other words, the check amount and the balance of cash in hand must add up to the original amount. The amount for the check to be issued can be verified by going through the petty cash vouchers to determine how much has already been spent. If, say, the vouchers add up to $300, a check is issued for this amount. Once the check is cashed, the cash in the petty cash box should equal the original amount.

A journal entry is prepared for the replenishment as follow:

General journal

Date Particulars Folio Debit Credit
20XX

$ $
Sep 01 Petty Cash
200

Cash

200

(Setting up of a petty cash fund)



The following is the simple format of a petty cash book:

Amount Received Date
Particulars
Voucher No
Total
Cleaning Postage
Printing and Stationary
Staff travelling expenses
Misc.
$ 20XX








$200 Jun 1 Cash







" 2 Cleaning 1 15 15




" 3 R Rover 2 12


12

" 5 Postage 3 10
10



" 9
Cleaning 4 15 15




" 12
Printing Paper 5 22

22



" 14
R Rover 6 14


14


" 16
Cleaning 7 15 15




" 18
Beverages 8 16



16

" 19
Postage 9 12
12



" 22
Envelopes 10 8
8



" 23
Cleaning 11 15 15




" 26
Lock and Keys 12 18



18

" 30
Cleaning 13 15 15




" 30
Balance c/d




















187
75 30 22
26
34
187 Jun30 Cash







" Balance c/d
200




387



200



Jul 1



Balance b/d



387










Cash Book (Bank Column)

Date Particulars Folio Amount
Date Particulars Folio Amount





20XX

$





Jun 01 Petty Cash PCB12 200





Jun 30 Petty Cash PCB12 187


General Ledger

Cleaning

Date Particulars Folio Amount
Date Particulars Folio Amount
20XX


$





Jun 30
Petty Cash
PCB12
75















Postage

Date Particulars Folio Amount
Date Particulars Folio Amount
20XX


$





Jun 30
Petty Cash
PCB12
30















Printing & Stationery

Date Particulars Folio Amount
Date Particulars Folio Amount
20XX


$





Jun 30
Petty Cash
PCB12
22















Travelling Expenses

Date Particulars Folio Amount
Date Particulars Folio Amount
20XX


$





Jun 30
Petty Cash
PCB12
26















Miscellaneous Expenses

Date Particulars Folio Amount
Date Particulars Folio Amount
20XX


$





Jun 30
Petty Cash
PCB12
34















Last Updated (Tuesday, 26 October 2010 13:45)