Petty Cash Book

Petty Cash Book Meaning

Petty cash book is an accounting book used to record the petty cash expenditures, i.e., expenditures of small amounts that a company occurs in its day-to-day operations.

Petty cash book can be expressed as a formal summarization of the petty cash expenditures, which refers to the regular day-to-day expenses of a business, which are not related to the company’s direct line of business. Therefore, it is an accounting book used for recording small expenses with little value.

Petty Cash Book

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How Does Petty Cash Book Work?

Format of Petty Cash Book

Below is the sample format of the petty cash book:

DateVoucher No.ParticularsQuantityPurchase AmountBalance
31/03/2018 Opening Balance1 250
4/5/2018123343Kitchen Supplies1-50200
4/8/2018123344Birthday Cake1-24.15173.05
4/11/2018123345Pizza Lunch1-81.6291.43
4/14/2018123346Taxi Fare1-2566.43
4/24/2018123347Newspaper1-1056.43

The person responsible for recording the receipts and the payments is known as the petty cashier. The company’s administrative department usually maintains the petty cash book as more significant business transactions are generally taken care by the accounts departments. Additionally, the admin department is also responsible for such kinds of expenses.

Petty Cash Book Systems

The cash is given to the petty cashier on the following petty cash system basis:–

#1 – Ordinary Petty Cash System

Under this system, a lump sum amount of cash is given to the petty cashier. The cashier is responsible for keeping a record of all the expenses for the review of the head cashier. He/she must present it before requesting new funds to run the day-to-day expenditure again.

#2 – Petty Cash Imprest System

Under the petty cash Imprest SystemImprest SystemImprest System is a financial accounting system designed to track and document the utilization of cash. A petty cash system accounts for every petty cash transaction to maintain an equilibrium in the fund equal to petty cash receipts and additional money left.read more, the petty cashier amount is fixed for a given period, which is usually a month or a week. Under this period, the cashier has to run the petty cash account under the given budget. At the end of the period, the cashier submits the report, and the amount spent by him is reimbursed so that the amount becomes equal to the beginning balance at the starting of the previous month. If the expenditure exceeds the amount given, a special request stating the requirement needs to be raised to the head cashier to replenish the funds for a given time. Imprest Petty CashPetty CashPetty cash means the small amount that is allocated for the purpose of day to day operations. It is unreasonable to issue a check for such small expenses and for managing the same custodians are appointed by the company.read more System has been widely adopted by the companies to run their petty cash account.

Advantages

  • Under this petty cash system method, the actual requirement of cash is realized effectively. For example, if $1,000 is only spent a month on such expenses, the initial amount floated to the responsible party can be immediately increased or decreased after analyzing the period and the nature of occurrence of expenses.
  • It also minimizes the probability of any error during bookkeeping as the head cashier periodically reviews it.
  • It has been a tried and tested method, which is also efficient and less time-consuming. 
  • This method can also bring cost savings to the firm. The amount incurred in petty cash expenses is analyzed carefully and checked periodically to realize how much cash is required and where the company can cut down on unnecessary expenses in the petty items. 
  • Imprest petty cash system also allows staff members to handle cash effectively to prove their worth to their seniors that they can also be seen as future cash managers.

Disadvantages

  • This system is sometimes lengthy and can become time-consuming, and often requires some resources to work behind it, which can also be deployed in other efficient and useful tasks.
  • The system needs to be reviewed periodically. Each amount recorded must be mapped against each expense, which can become a prolonged process if the business’s quantum of entries is of a considerable amount.

Conclusion

Petty cash book is a manual system of recording expenditure and is often prone to errors. It also becomes a cumbersome task to keep the books and record each transaction, especially in big companies. However, many companies are scrapping the old bookkeeping system to overcome this. Instead, they are now moving to modern bookkeeping methods like corporate credit cards or tally software, which are highly efficient systems for recording nominal and considerable business transactions.

So, to conclude, we can say that, over time, the petty cash book of recording has lost its importance. But, it can still be used as a handy tool to record in companies where modern technology has not been introduced.

This article has been a guide to what is Petty Cash Book is. Here we discuss the format of Petty Cash Book, Types of Petty Cash Systems, including the Ordinary and Imprest System, along with its advantages and disadvantages. You may learn more about accounting basics from the following articles –

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