Petty cash book

Petty cash book

Business entities have to pay various small expenses like taxi fare, bus fare, postage, carriage, stationery, refreshment and other sundry items. These are small payments and repetitive in nature. If all these small payments are recorded in the main cash book, it will be loaded with lot of entries. Hence, all petty payments of the business may be recorded in a separate book, which is called as petty cash book and the person who maintains the petty cash book is called the petty cashier. Thus business concerns may maintain main cash book and petty cash book separately.

All the small payments must be supported by vouchers, that is, documentary evidences. The vouchers must be numbered and filed in order. Petty cashier makes only cash payments. He must not be allowed to receive any cash except for reimbursement. Petty cashier has to make payments only within the specified limit. Payments involving large amounts must be made only by main cashier. At the end of the relevant period, petty cash book is balanced. Balancing of petty cash book is similar to the balancing of simple cash book.

1. Imprest system of petty cash

Under this system, a fixed amount necessary or sufficient to meet petty payments determined on the basis of past experience is paid to the petty cashier on the first day of the period. (It may be a week or fortnight or month). The amount given to the petty cashier in advance is known as “Imprest Money”. The word imprest means payment in advance. The petty cashier makes payments from this amount and records them in petty cash book. At the end of a particular period, the petty cashier submits the petty cash book to the head cashier. The head cashier scrutinises the petty payments and gives amount equal to the amount spent by petty cashier so that the total amount with the petty cashier is now equal to the amount he had received in the beginning as advance. Under the system, the total cash with the petty cashier never exceeds the imprest at any time during the period. This method thus provides an effective control over petty payments.

For example, On 1st June, 2017, Rs. 1,000 was given to the petty cashier. He had spent Rs. 940 during the month. He will be paid Rs. 940 on 30th June by the cashier so that he may again have 1,000 for the next month i.e., JuLy, 2017.

2. Advantages of maintaining petty cash book

Following are the advantages of maintaining petty cash book:

i.            There can be better control over petty payments.

ii.            There is saving of time of the main cashier.

iii.            Cash book is not loaded with many petty payments.

iv.            Posting of entries from main cash book and petty cash book is comparatively easy.

3. Types of petty cash book

There are two types of petty cash books. They are:

i.            Simple petty cash book

ii.            Analytical petty cash book

(i) Simple petty cash book

A simple petty cash book resembles the single column cash book. But the columns are different. On the debit side, only the advance received from the head cashier is recorded. On the credit side, all payments are recorded in only one column. This is known as simple petty cash book.

(ii) Analytical petty cash book

In analytical petty cash book, a separate column is provided for different heads of payments and one column for total payments. When the petty expenses are recorded in the total payment column, same amount is also recorded in the appropriate expense column. This is known as analytical petty cash book.

Details entered in the various columns of the petty cash book are as follows:

1) Receipts

This is the first column of the petty cash book. The amount received by the petty cashier for meeting petty expenses is recorded in this column. Generally, amount is received once on the first day of every week or month. The opening balance of petty cash is recorded in this column as the first item. This column shows the total amount available with the petty cashier.

2) Cash Book Folio Number (C.B.F.N.)

In this column, the page number of the cash book in which the entry is made is recorded.

3) Date

In this column, the date of receipt of petty cash and payment of every petty expense is recorded.

4) Particulars

The details of transactions are entered in this column. Cash received in the beginning is recorded as ‘To Cash A/c’ and all the petty expenses are recorded as ‘By Concerned Expense A/c” (name of the expense).

5) Voucher Number (V.N.)

Every transaction in accounting must be supported by documentary evidence. All the payments must have vouchers which must be arranged in the chronological order of payment and serially numbered. Voucher number of every payment is written in this column.

6) Total

The amount of every petty expense is recorded in this column. At the end of the week or month expenses are totalled. The total expenses of the week or the month is compared with the total of the receipts column and balance is obtained.

7) Postage

Postal expenses incurred for post card, envelope, inland letter, postage stamps, registered letter, parcel, etc. are recorded in this column.

8) Stationery

It includes expenses incurred for purchasing materials such as paper, ink, pencil, eraser, carbon paper and other similar stationery items.

9) Carriage

It includes amount paid as wages, transport charges and other expenses.

10) Travelling or conveyance expenses

In this column fare for auto rickshaw, taxi, bus, train, etc., are recorded.

11) Refreshments

Amount spent for tea, coffee, snacks, etc., is recorded.

12) Sundries

There may be certain expenses which are infrequent for which specific columns are not provided. These are recorded in this column.

13) Personal accounts

Small amount of money paid to individuals are entered in this column.

14) Ledger Folio (L.F.)

This refers to the page number of the ledger where the respective account is recorded.

4. Balancing petty cash book

At the end of the period, i.e., week or month the total of the total column, individual expenses columns and sundries columns, is obtained. The total of the individual petty expenses column must be equal to the total in the total column. The sum of the total column is compared with the total of receipts column and the balance is obtained. The closing balance is shown as ‘By Balance c/d’. The closing balance is carried forward to the next week or month. It is shown as ‘To Balance b/d’. Cash received from the main cashier at the beginning of the next period is entered as ‘To Cash A/c’ and the amount is recorded in the Receipts column.

5. Posting of entries from petty cash book to ledger

i. When petty cash is advanced at the beginning:

A separate petty cash account is opened in the ledger. When advance is received by the petty cashier, petty cash account is debited and cash account is credited.

ii. When individual expenses columns are periodically totalled:

The total of various petty expenses are debited and the petty cash account is credited with the total of the payments made.

The petty cash account will show the balance of petty cash. This balance will be shown in the balance sheet as part of cash balance.

Tutorial note

Instead of debiting the total of each petty expense directly, a separate journal entry may also be made and then credited to petty cash account. The journal entries are:

For receiving petty cash:

Petty cash A/c                         Dr.

 To Cash A/c

For expenses paid:

Respective expense A/c           Dr.

To Petty cash A/c

Illustration 8

Prepare a analytical petty cash book from the following information on the imprest system:

2017                                                                              500

Jan. 1  Received for petty cash                                                5

Jan. 2          Paid rickshaw charges Paid                                  12

cartage                                                                           15

Jan. 3  Paid for postage                                                 66

Paid wages to casual labourer                              134

Jan. 4  Paid for stationery Paid for                                18

auto charges                                                                   65

Jan. 5          Paid for repairs Paid for bus                                          11

fare Paid for cartage                                                       24 

Solution for illustration 8

Prepare a analytical petty cash book from the following information on the imprest system:

2017

 Jan. 1 Received for petty cash 500

 Jan. 2 Paid rickshaw charges 5

 Paid cartage 12

 Jan. 3 Paid for postage 15

 Paid wages to casual labourer 66

 Jan. 4 Paid for stationery 134

 Paid for auto charges 18

 Jan. 5 Paid for repairs 65

 Paid for bus fare 11

 Paid for cartage 24

Illustration 9

Prepare analytical petty cash book in the books of Robert from the following transactions. 2017

Sept            Rs.

1   Balance in hand        230

     Received a cheque to make the imprest amount        2,270

2   Postage  314

8   Railway freight         280

10 Repairs to computer 405

12 Printing charges        500

16 Refreshments to customers 72

20 Pen and ink purchased       183

22 Paid auto Charges     75

Solution for illustration 9

Prepare analytical petty cash book in the books of Robert from the following transactions.

 2017

 Sept Rs.

 1 Balance in hand 230

 Received a cheque to make the imprest amount 2,270

 2 Postage 314

 8 Railway freight 280

 10 Repairs to computer 405

 12 Printing charges 500

 16 Refreshments to customers 72

 20 Pen and ink purchased 183

 22 Paid auto Charges 75