Petty Cash Book Meaning
Petty Cash Book is the accounting book that is used for the purpose of recording the petty cash expenditure i.e., the expenditure which is of the small amount that the 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 day-to-day normal expenditures of the business which is not related to the direct line of the business. It is an accounting book used for recording expenses which are of small and of little value.
How does Petty Cash Book work?
- The basis of accounting lies in the three main accounting terms and accounts which comprises the journal, ledger and the Petty cash book. Each transaction recorded in the books of accounts goes through these three main accounts in order to get captured.
- Journal is an integral part of book-keeping which is the starting point of accounting and it records all the business transactions whereas the Petty cash book records the transaction related to the cash account. From the initiation of Journal, the Ledger account is prepared, with the help of which the final books of accounts of the company is prepared.
- However, there is a number of transactions during the normal course of the business which is of very petty and nominal amount and is not recorded in the cash book account. For transactions of such nature, Petty Cash Book is used.
Format of Petty Cash Book
Below is the sample format of Petty cash Book.
The person who is responsible for the recording the receipts and the payments is known as the petty cashier. In the company, the petty cash book is usually maintained by the administrative department of the company as the accounts departments are usually occupied by the larger business transactions and also the admin department is only responsible for such kind 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 money is given to the petty cashier. The cashier is responsible to keep a record of all the expenses for the review of the head cashier and present it before requesting for new funds to run the day to day expenditure again
#2 Petty Cash Imprest System
Under the Imprest Petty Cash System, the petty cashier amount is fixed for a given time period under which is usually under a month or a week. Under this time 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. In case the expenditure exceeds the amount furnished a special request stating the requirement needs to be raised to the head cashier in replenishing the funds for a given time. Imprest Petty Cash System has been widely adopted by the companies to run their petty cash account.
- Under this Petty Cash System method, the actual requirement of cash is realized effectively. For example, if in a month $1,000 is only spend in such expenses the initial amount floated to the responsible party can be immediately increased or decreased after analyzing the time period and the nature of occurrence of expenses
- Imprest Petty Cash System also minimizes the probability of any error which can occur during the course of bookkeeping as it is periodically reviewed by the head cashier
- It has been tried and tested and is an efficient method which also less time consuming and efficient
- This method can also bring cost savings to the firm as the amount incurred in petty cash expenses is analyzed carefully and is checked periodically in order to realize how much cash is required and where can the company cut down on expenses in the petty items
- Imprest Petty Cash System also gives an opportunity to the staff members on how to handle cash effectively in order to prove their worth to their seniors that they can also be seen as future cash managers of the firm
- The use of this system is sometimes very long can become time-consuming and often requires some resource to work behind it which can also be deployed in some other efficient and useful tasks
- The System needs to be reviewed again periodically and each amount recorded needs to be mapped against each expense which can become a lengthy process if the quantum of entries is of a considerable amount in the business
Petty cash book is a manual system of recording expenditure and is often prone to errors and sometimes becomes a cumbersome task to keep the books and record each transaction, especially in a big company. However, to overcome this these days many companies are scrapping the old system of bookkeeping and are moving to a modern system of bookkeeping which are corporate credit cards or usage of tally software which is an efficient system of recording both nominal and considerable amount of business transactions.
Over the time the petty cash book of recording has lost its importance but it is still can be used as a handy tool to record in companies where modern technology has not taken place.
This has been a guide to what is Petty Cash Book. 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 –