ACCOUNTANCY - PETTY CASH BOOK
In all large businesses there are numerous small expenses to be met by cash payments. If all these payments were entered in detail in the main Cash Book, which is usually written up by a senior official, much valuable time would be wasted. To obviate this, a separate Cash Book, termed a Petty Cash Book, is utilized, in which all these expenses are recorded.
ACCOUNTANCY
The conventional system for recording petty cash is known as the Imprest System, the main features of which are as follows. At the start of each accounting period the petty cashier is supplied with a round sum in cash, often termed a float. This amount should be sufficient to cover the estimated petty cash expenditure for a stated period, e.g. a week or s month. At the end of this period the petty cashier must ascertain the total amount spent, and he will be reimbursed out of the General Cash Book for such amount, the balance in hand being thus restored to the original starting figure. Hence opportunity for the accumulation of large sums of cash in the hands of the petty cashier is eliminated and the risk of fraud minimized, as a complete check on the petty cashier may be kept at all times, since the sum of the vouchers representing money spent plus the cash in hand should always equal the amount of the 'float'.
When this system is adopted the initial advance to the petty cashier is debited to Petty Cash Account in the ledger, and cash is credited. At the same time the amount is debited for practical purposes (this is a memoran- dum entry, the double entry having already been completed) in the Petty Cash Book. When the expenditure for the period is recouped, the petty cashier's balance is restored to the original figure. The entries in the double-entry books will be as follows:
Debit side: Expenses (per the detailed analysis of the Petty Cash Book). Credit side: Cash (with details) in the General Cash Book.
All moneys paid out of petty cash are entered on the credit side of the Petty Cash Book, and extended into analysis columns, the totals of which are utilized for posting at suitable periods to the debit of the appropriate nominal accounts from the General Cash Book. It often happens in practice that Ledger accounts are settled through the Petty Cash. In such cases a special column must be opened in respect of Ledger accounts, and the amounts paid to creditors must be inserted therein and posted to the debit of the respective accounts in the Ledger. The total of the Ledger column will not be posted to any account since the items contained therein will have been posted individually to their separate accounts.
Illustration 4
A. & Co., who keep their Petty Cash on the Imprest System, and maintain a weekly floating balance of £35, have the following transactions for the week ending 27th January:
19.
Jan. 22. Postages 4.50
HC. Smith (who has an account in the Creditors' Ledger) 3.45
23 Office Table 6.35
24 Travelling Expenses 1.25
25. Tip to Vanman 0.50
Carriage 2.75
27. Casual Labour (Wages) 8.75
Notepaper 1.50
ACCOUNTANCY
In this way the Petty Cash Book merely acts by way of memorandum and provides the necessary data for the double-entry.
Alternative Methods
Alternatively, the Petty Cash Book could be used as a double-entry book, in which case the double-entry would be provided thus:
1. Dr. Petty Cash Account in Petty Cash Book.
Cr. Cash (in General Cash Book).
2. When the Cash spent is recouped.
Dr. Petty Cash Account in Petty Cash Book.
Cr. Cash (in General Cash Book).
3. Dr. Expenses (detailed).
Cr. Petty Cash Account in Petty Cash Book.
In this case the Petty Cash Book is regarded as an account just as the General Cash Book and is definitely an integral part of the double-entry. As a further alternative the cash recoupment may be posted in one sum from the Cash Book to the Petty Cash Account in the Ledger, and from there the different amounts will be credited out to the Expenses Accounts, leaving eventually the same balance on Petty Cash Accounts as before.
There may be cases to which the Imprest System is not suited, as when sudden large balances of cash are necessary, or when there are only very occasional calls for petty cash expense, which are met by the cashier as they arise. It should be observed that two of the systems described in connection with the Imprest System can be utilized also in a slightly modified form where no imprest system is enforced.
(a) Where the Petty Cash Book is Part of the Double-entry System.
Periodical sums paid to the petty cashier will be debited to the Petty Cash Book and credited to the General Cash Book. The Petty Cash Book will be ruled in columnar form or will be analysed at the end of periods by other means, the totals of the columns or the analysed amounts being posted at suitable periods from the Petty Cash Book to the debit of Expenses Accounts.
(b) Where the Petty Cash Book is a Memorandum Book Only.
A Petty Cash Account in the Ledger will be opened, thus supplying the integral link with the main accounting system.
periodical sums paid to the petty cashier will be debited (1) to the Petty Cash Account and (2) (for memorandum purposes) to the Petty Cash Book. The Petty Cash Book will be analysed under different headings above, and these items will be credited to the Petty Cash Account and debited to the various Expenses Accounts. It is important to notice, in this method, that the postings to the Expenses Accounts are made from the Petty Cash Account and not from the Petty Cash Book. In view of this fact it is desirable to make a Journal entry which will show concisely at a
glance the details of the transfers recorded.
