Petty Cash Book

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. Thus, the book is part of a manual record-keeping system. There are two primary types of entries in the petty cash book, which are a debit to record cash received by the petty cash clerk (usually in a single block of cash at infrequent intervals), and a large number of credits to reflect cash withdrawals from the petty cash fund. These credits can be for such transactions as payments for meals, flowers, office supplies, stamps, and so forth.

Petty cash systems

The cash allocated for petty expenditures for a specific period is entered on the credit side of general cash book and on the debit side of petty cash book.

The cash is given to the petty cashier either on ordinary system or imprest system which are briefly explained below:

1. Ordinary system

Under ordinary system, a lump sum amount of cash is given to the petty cashier. When the whole amount is spent, the petty cashier submits the details of petty expenditures recorded in the petty cash book to the head or chief cashier for review.

2. Imprest system

Under imprest system, a fixed amount of money known as float is given to the petty cashier to meet petty expenditures for an agreed period which usually consists of a week or month. At the end of agreed period, the petty cashier submits the details of all expenditures incurred by him to the chief cashier. The total cash spent by the petty cashier during the period is reimbursed to him and the total cash available to spend at the start of the next period becomes equal to the original sum (i.e., float). At any time, the total of petty cash balance and all expenditures that have not been reimbursed to the petty cashier is equal to the agreed float.

Advantages of imprest system:

The imprest system of petty cash is used by most of the companies because of the following advantages:

• The imprest system reduces the chances of misuse of cash because the float can be immediately reduced if it is found to be more than adequate for the agreed period.
• Under this system, the chief cashier periodically checks the record of petty cash. If an error is committed by petty cashier, it can be detected and rectified soon.
• It saves the time of the firm’s chief cashier who is usually a busy person with heavy responsibilities of handling large receipts and payments by cash and checks.
• The imprest system enables significant saving to be effected to post small items to accounts in the ledger since it uses an analysis system that collects small items together into weekly or monthly totals.
• This system trains young staff members in handling cash with responsibility.
• There are little to no chance of misappropriation of cash by the person in charge because the imprested sum is usually very small.

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. To ensure that this is an effective control, the petty cash book should be reviewed periodically by an internal auditor to see if the net total amount of cash available as per the book matches the actual amount of cash on hand in the petty cash drawer. If not, the petty cash clerk may require additional training.