PETTY CASH BOOK – TaxDose.com

PETTY CASH BOOK :

Payments in cash of small amounts like traveling expenses, postage, carriage etc. are petty cash expenses. These petty cash expenses are recorded in the petty cash book. The petty cash book is maintained by separate cashier known as petty cashier. The firm may adopt Imprest System of maintaining petty cash. The petty cashier is given a certain sum of money at the beginning of the fixed period (e.g. a month/fortnight) which is called float. The amount of float is so fixed that it may be adequate to meet petty expenses of the prescribed period. The balance in the petty cash book shows cash lying with the petty cashier.

Petty Cash Book

The advantages of the imprest system are as follows:
– It saves the time of the chief cashier.
– Petty cashier is not allowed to keep idle cash with him if the float is found to be more than adequate; its amount will be immediately reduced. This reduces the chances of misuse of cash by the petty cashier.

– The record of petty cash is checked by the cashier periodically, so that a mistake, if committed, is soon rectified.

– It enables a great saving to be effected in the posting of small items to the ledger accounts.

– The system trains young staff to handle cash responsibilities.

Petty Cash Book may be treated either as a part of the double entry system or merely as a memoranda book. If the former course is adopted, each payment to petty cashier is shown on the credit side of the main Cash Book which is considered to have been balanced by a debit entry in the petty cash book. The two entries are folioed against each other completing the double entry aspect. Payments recorded in the Petty Cash Book are directly posted to the different nominal accounts. Of course, entries for expenses are made only with the periodical totals of expenses under various heads. If the latter course is adopted, for amounts paid to petty cashier, petty cash account in the ledger is debited besides entering the amounts (paid to petty cashier) on the credit side of the main cash book. Periodically, different nominal accounts are debited and the petty cash account is credited in ledger for expenses recorded in Petty Cash Book.

Illustration 6:

Prepare an analytical Petty Cash Book from the following information:

Petty cash is maintained on the basis of imprest system. On 21st January, 2013 the petty cashier had with him Rs. 328. He received Rs. 672 to make up the expenses of the previous week. During the week the following expenses were met by the petty cashier:

2013			Rs.
March	21	Bus fare 6	6
”	21	Revenue stamps	85
	21	Tea for customers	22
”	22	Cartage	43
”	24	Payment to Coolie	10
	24	Telegram charges	76
	24	Refreshment for customer	52
”	25	Repairs to furniture	100
	25	Taxi charges	87
	25	Post cards	90
	25	Cloth for dusters	74
	25	Tea for customers	20

Solution:

Amount Received	*Date*	*Particulars*	Vouc her No.	*Total* *Amou* *nt Paid*	Cartage & Cooli	Printing & Stationery	Customers Entertainm ent	Conveya nce	Sundri es
	2013
	Jan.
328	22.	To Balance b/d
672	21.	To Cash
	21.	By Bus Fare		6				6
	21.	By Rev. Stamps		85		85
	21.	By Tea for Customers		22			22
	22.	By Cartage		43	43
	24.	By Cooli		10	10
	24.	By Telegram charges		76		76
	24.	By Refreshment to
		customers		52			52
	25.	By Repairs to
		Furniture		100					100
	25.	By Taxi Charges		87				87
	25.	By Post Cards		90		90
	25.	By Cloth for Dusters		74		74
	25.	By Tea for Customers		20			20
		By Balance c/d		335
1,000				1,000
335	28.	To Balance b/d
665	28.	To Cash A/c

The journal entry required for various petty cash expenses are the following:

	Z	Z
Cartage A/c Dr.	53
Postage and Telegrams A/c Dr.	251
Conveyance A/c Dr.	93
Customer’s Entertainment A/c Dr.	94
Repairs A/c Dr.	100
General Expenses A/c Dr.	74
To Petty Cash Account		665

The Petty Cash Account in the ledger will appear as follows:

Dr. Petty Cash Account Cr.

2013			2013
Jan. 21	To Balance b/d	328	Jan. 25	By Sundries*	665
“	To Cash A/c	672	”	By Balance c/d	335
		1,000			1,000
Mar. 28	To Balance b/d	335
³¹	To Cash	665

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