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PETTY CASHBOOK

PETTY CASH BOOK

 

 

 

Introduction

The petty cash book is a special type of cashbook (subsidiary cashbook) designed to keep record of minor cash transactions ie transactions involving expenditure of small sums of money. Such small sums of money are known as petty cash.

Every firm finds it necessary to have some cash available for payment of small items of which the services of a bank would not be convenient. These are usually for:

  1. Postage – stamps for sending letters and parcels, telegrams
  2. Stationery – ink , ball pens,, erasers, envelopes, papers , books for writing
  • Traveling expenses – fares for various means of transport
  1. General expenses or miscellaneous expenses for items like minor repairs, tips and other miscellaneous expenses.
  2. Sundries – for items, which are not usual petty cash items but are nevertheless paid in cash, for example, loan to employee, purchase of goods etc
  3. Ledger – for payment to creditors / suppliers.

The purpose of operating a petty cash system is to

  1. Relieve the main cash book of numerous entries of a large volume of transactions involving expenditure of small amounts of money.
  2. Enable the cashier to concentrate on major cash transactions while minor / small cash transactions are handled by the petty cashier.
  • Reduce unnecessary movement to the bank to withdraw money whenever any payment is to be made.
  1. Reduces temptation of fraud and stealing of cash in the business
  2. Serves as a training ground for the petty cashier in managing and accounting for money.
  3. Promotes division of labour and improved efficiency in the management of money.

Terms used

Imprest system. This is a method where the cashier gives the petty cashier an adequate amount of money to meet his petty cash payments for a given period of time say a week, fortnight or a month. At the end of the period the petty cashier gives accountability of money spent. Thereafter the petty cashier is reimbursed more money to bring the cash in hand (imprest) back to the original amount i.e. to replenish the amount of the imprest and the same cycle is repeated.

Imprest amount / cash float. This refers to a fixes sum of money given to the petty cashier to spend in a given period of time.

Or. This is system where the petty cashier is reimbursed the exact amount spent so as to be restored to his original position.

Advantages of imprest system of petty cash book

  • The money in the hands of the petty cashier is limited to the imprest amount hence misappropriation is made difficult.
  • The fixed sum (imprest amount) diminishes in amount as the month or other fixed period proceeds; thus the imprest amount is held for a short period of time.
  • Extravagance will be revealed by keeping a watch on the amount reimbursed to the petty cashier each period.
  • It provides an additional check as the petty cashier is not authorized to make payment without a voucher.
  • The amount of cash on hand plus expenses not reimbursed must tally with the imprest amount.
  • To the petty cashier; the system has the advantages that his liability to account for money expended can never exceed the imprest amount.

Reimbursement. This is the topping up of the balance brought down by the petty cahier to bring the amount to its original imprest.

We have already mentioned that where the practice is to bank all the cash and cheques received on a daily basis and make all payments by cheque, small disbursements will be passed through the petty cash book.

This is a columnar form of book having on the credit side analysis columns, with appropriate headings, for the more usual classes of expenditure.

This method enables the petty cashier to analyze the expenditure as it occurs, carrying forward the t

Format of the petty cash book as shown below

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Enter the following transactions in the petty cash book of Odongo Steven having analysis columns for postage, cleaning, stationery, travelling expenses and ledger

March 2016

1st  received for petty cash float                                       150,000

1st bought stamps                                                                4,000

3rd paid for telegram                                                            6,000

7th paid for bus fare                                                           10,000

10th Gummer labels                                                             2,000

16th floor polish                                                                   7,000

18th paid Ssentongo (supplier)                                           30,000

25th bought stamps                                                              4,000

27th paid for taxi fare                                                           8,000

29th paid for paper clips                                                        2,500

Petty cash book

The analytical petty cash book

  • When we talk of a petty cash book, we talk of the analytical petty cash book which is often used. The example given above.
  • The receipts column is the debit side of the petty cash book. On giving shs 150,000 to the petty cashier on 1st Jan, the credit entry is made in the cash book while the debit entry is made in the petty cash book.
  • A similar entry is made on 31st March for shs 73,500. This amount covers all expenses paid by the petty cashier.

On the credit side

  • Enter date and details of each payment. Put the amount in the total column.
  • Put the amount in the column for the type of expense.
  • At the end of each period, add up the total column.
  • Now add up each of the expense columns. Total of (c) should equal the total of all expense columns. In this example 73,500.
  • Then balance off the petty cash book, carrying down the petty cash in hand balance to the next period.

To complete the double entry for petty cash expenses paid:

  • Total of each expense column is debited to the expense account in the general ledger.
  • Enter folio number of each general ledger page under each of the expense columns in the petty cash book.
  • The last column in the petty cash book is a ledger column. In this column items paid out of petty cash, which need posting to a ledger other than the general ledger, are shown
  • This would happen if a purchases ledger account was settled out of petty cash.

Example two

The petty cashier of Kira S.S is given a weekly imprest of shs 200,000. During the week that beginning November 3rd 2015, she made the following transactions

3rd balance at hand                                                          41,000

4th cash reimbursement                                                   ?

4th bought office cleaning materials                                  24,000

5th paid staff tea                                                              15,000

5th paid for head master’s travel fare                                30,000

6th paid for staff transport                                                10,000

6th paid for staff sodas                                                     15,000

6th send mail shs 1,500 and bought 4 reams of paper        24,000

7th bought 4 boxes of chalk                                              10,000

7th bought sugar and tea                                                    4,000

7th bought staple wires                                                       1,000

8th bought envelopes                                                         2,000

8th paid cleaners                                                              10,000

8th bought a broom                                                               500

8th paid weekly newspaper                                               14,000

Required

  1. Prepare Kira S.S petty cash book having analysis columns for stationery, cleaning, travelling, postage and office expenses.
  2. Show the entries to be made in the general  ledger

Petty cash book