PETTY CASH BOOK

 3.5 PETTY CASH BOOK

You have so far learnt that all cash receipts and payments are recorded in the cash book. In practice yo[! will find that almost in every business there are many small payments in cash such as stationery, postage, telegrams, cartage, conveyance, etc. If all these small payments are also recorded in cash book, the cash book will become bulky, and the cashier will also be overburdened with the work. In order to reduce the burden on the cashier, a separate book called 'Petty Cash Book' is maintained for recording all such small payments. A petty cashier is appointed for this.purpose. He is paid a certain sum in advance. He keeps on making small payments out of this advance and records them in the Petty Cash Book. The amount of money given lo petty cashier is called petty cash.

3.5.1 Imprest System 

GeneralIy, Petty Cash Book is maintained on imprest system. Under this system an estimate I is made of the amount required for small payments for a certain period, say, a week or a month and this amount is paid to the petty cashier in advance. The petty cashier makes the small payments and records them in the Petty Cash Book. All such payments are supported by vouchers or receipts. At the end of the period , the petty cashier submits the account to the chief cashier. The chief cashier examines the account and pays to the petty cashier the amount spent by him so that ~t the beginning of the next period again he has the same amount as he had in the beginning. This system of advance is called the 'imprest system' and the amount given to the petty cashier as advance is known as the 'imprest money'. For example, on April 1, Rs. 300 is given as advance to the petty cashier. He spends Rs. 260 during the month and submits the account alongwith the vouchers to the chief cashier. After verifying the account, the chief cashier pays him Rs. 260. Thus, on May 1, the petty cashier again has Rs. 300 with him. The amount to be given to the petty cashier i.e., imprest money, should be carefully determined. It should neither be too large nor too small, it should be sufficient to make small payments for the fixed period.

3.5.2 Recording and Posting the Petty Cash Book

As you will observe in Illustration 9 the Petty Cash Book has a number of cohmns. The extreme left-hand column records the receipts of cash. But on the payment side a separate columtl is provided for each expense, such as postage, telegrams, stationery, cartage, wages, conveyance, etc. This facilitates the arlalysis of payments under different headings and also helps in posting to the concerned accounts. The number of columns depend upon the nature and size of the business. The columns provided for different expenses generally art: 

 (i) printing and stationery, (ii) postage and telegrams, (iii) cartage, (iv) conveyance, 

(v) entertainment. and (vi) sundry expenses. 

When the petty cashier receives money from the chief cashier, he records it in the particulars column of the Petty Cash Book by writing 'To Cash A/c' (if he receives cash) or 'To Bank A/c' (if he receives a cheque) and records the amount in receipts column. When payment is made, it is entered in the particulars column by writing the name of the expense incurred. The amount is first recorded in the 'total payments' column and then in the relevant column provided for it.

The Petty Cash Book is balanced periodically. The difference between the total receipts and total payments is the balance with the petty cashier. This balance is carried to the next period and the petty cashier is paid the amount actually spent by him. Thus, you will note that the procedure of balancing the Petty Cash Book is the same as you have adopted in the case of ordinary cash book. 

A 'Petty Cash Account' is opened in the ledger. It is debited with the amount given to petty cashier. When Petty Cash Book is balanced, each expense account is individually debited with the periodic total as per the respective column by writing 'To Petty Cash A/c' and the 'Petty Cash Account' is credited with the total expenditure incurred during the peirod by writing 'By Sundries as per Petty Cash Book'. The Petty Cash Account is then balanced, It ilormally shows a debit balance which will be equal to the actual cash with the petty cashier. 

Look at Illustration 9.

 It shows the recording of Petty Cash Book and its posting into the ledger. 

Illustration 9 

 Enter the following transactions in Petty Cash Book, and post them into ledger.