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Petty cash book

The term “Petty” is derived from the French word “Petit” which means “small”. Petty cash book is a subsidiary book used for recording the payment of petty cash expenses. The balance in the petty cash book shows the petty cash in hand which will be shown on the asset side of the Balance Sheet. Petty cash book may be maintained under the imprest system or the non imprest system. The assistant to the head cashier maintains petty cash book and is known as petty cashier.

Advantages of Petty Cash Book

  • Reduction in number of transactions
  • Reduction of errors
  • Saving of time and labour of the chief cashier
  • Check and control on petty expenses
  • Facilitates posting

Imprest Cash System

Under the imprest system, the chief cashier makes the reimbursement of the amount spent by the petty cashier. Under this system, the cash balance at the end of a period will be the same as in the beginning. It saves time in posting small items to ledger accounts and reduces the chances of defalcation of cash. The amount which is paid to the petty cashier at the beginning of a period is known as imprest amount.

Illustration 4

 

From the following particulars, prepare petty cash book on the imprest system of XYZ & Co. for the month of January, 2012.
 

Date

Particulars

2012 Jan.

 

 

1 Opening balance (on imprest system) 50
2 Paid for stamps 6
3 Paid cleaners wages 7
4 Paid for the fare 8
5 Paid for the office tea etc. 8
6 Paid for repairs of the cycle 5
7 Paid for advertisement 15
8 Drew imprest from head cashier 49
9 Paid for cartage 5
10 Paid for travelling expenses 13
11 Paid for a telegram sent 7
12 Paid for entertainment for travelling salesmen 10
13 Paid for repairs of cycles 5
14 Paid for printing bills 2
15 Paid for stationery 2
16 Drew imprest from head cashier 44


Non Imprest System of Petty Cash Book

Under the non-imprest system, the chief cashier may hand over the cash to the petty cashier equal to or less than or more than the amount actually spent by the petty cashier. The petty cashier may or may not have the same cash balance as at the beginning. All the heads of expenses are totalled periodically and posted to the respective ledger accounts.

Balancing a Petty Cash Book

At the end of the period i.e., week or month, the total payments column and individual expense columns are totalled. It should be ensured that the total of petty expenses column must be equal to the total of payments column. The total payments column is compared with the total of receipts column and the balance is obtained. The closing balances are shown as ‘By Balance c/d’. The closing balance is carried forward to the beginning of the next period.

Non Imprest System of Petty Cash Book

Under the non-imprest system, the chief cashier may hand over the cash to the petty cashier equal to or less than or more than the amount actually spent by the petty cashier. The petty cashier may or may not have the same cash balance as at the beginning. All the heads of expenses are totalled periodically and posted to the respective ledger accounts.

Balancing a Petty Cash Book

At the end of the period i.e., week or month, the total payments column and individual expense columns are totalled. It should be ensured that the total of petty expenses column must be equal to the total of payments column. The total payments column is compared with the total of receipts column and the balance is obtained. The closing balances are shown as ‘By Balance c/d’. The closing balance is carried forward to the beginning of the next period.

Posting of Entries in the Petty Cash Account

  • 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 will be debited and Cash account will be credited.
  • When individual expenses column is periodically totalledThe total of various petty expenses is debited and the Petty cash account is credited with the total of the payments made. The Petty cash account will show the balance of cash. This balance will be shown in the Balance Sheet as a part of cash balance.

Nature of accounts/columns

 

Column

Nature

Closing balance

Cash

 

 

Cash column

represents Cash

Account. It is a Real Account.

As payments of cash cannot exceed receipts thereof, Cash balances cannot be negative, So, this column will always have Dr. side total greater than the Cr. side. Closing balance is written on the credit side as “By balance c/d”.

Bank


 

 

Bank column

represents Bank

Account. It is a Personal Account.

1. If Dr. side > Cr. side, it means there is a favourable bank balance, which is written on the credit side as “By balance c/d”.

2. If Cr. side > Dr. side, it means that there is an overdraft balance, which is written on the debit side as “To balance c/d”.

Discount


 

 

 

Discount column

represents Discount allowed received. It is a Nominal Account.

 

1. Discount columns are not balanced. They are totalled and entered in the Discount account in the ledger.

2. Total of discount column on the receipt side (i.e, Dr. side) shows total discount allowed to customers.

3. Total of discount column on the payment side (i.e, Cr. side) shows total discount received from suppliers.





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