There might be a petty cash drawer or box in each department for. Petty cash book maintains records of all petty payments systematically. The imprest petty cash float system is an important internal control tool to check cash and its usage or theft. If we do not maintain a cash book and record all cash transactions in the journal, unnecessary time and labor would be required for debiting and. Advantages to using petty cash petty cash is an easy to understand and familiar method of paying for company expenses. The petty cash book is to enter how the cash available for daily expenses are spent for example milk, tea, taxi charges and. Businesses operating on a large scale usually maintain a petty cash book to harness the. Petty cash book a petty cash book is shown on the next page. The chief cashier is relieved from the cumbersome work of petty cash disbursement. It is possible to find out daily cash and bank balance. Payments in cash of small amounts like traveling expenses, postage, carriage etc. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers. What are the main advantages of maintaining cash book.
Petty cash book can be expressed as a formal summarization of the petty cash expenditures which refers to the daytoday normal. Fundamentals of financial accounting chapter 02 at the end of each topic you should be able to. Cash and bank transactions can be recorded in cash book. Many expenses of small nature are recorded in petty cash book. In most cases, the petty cash book is an actual ledger book, rather than a computer record.
Study 101 terms accounting 1a ch7 booknotes flashcards. You should write a check to the custodian to initially establish the fund. An imprest system of petty cash is used for more control over cash in hand. Explain the main forms of business transaction and documentation identify, explain and understand the main forms of accounting record, including. The main advantages of imprest system of petty cash are as follows. Advantages and disadvantages of analytical petty cash book qs. In an imprest system, the amount in hand plus the amount of all receipts should be equal to petty cash balance. Besides maintaining a main or general cash book, many companies also. Under this system, the chief cashier periodically checks the record of petty cash. Cash book also serves the purpose of book of original entry as well as ledger. Petty cash book definition, types, format, examples. It relieves the cash book and the chief cashier of the burden of recording tiny.
It is an accessible, convenient way to pay for small purchases. Fixed amount is paid to the petty cashier along with the imprest system. Advantages and disadvantages of analytical petty cash book. In a big concern, recording of all transactions in one journal and. Meaning of petty cash book, its importance and advantages.
A petty cash book gives management a record of all the little. Subsidiary books are those books of original entry in which transactions of similar nature are recorded at one place and in chronological order. Forecasting your business needs ahead and planning for purchases and other business miscellaneous will become easier with bookkeeping. Petty cash book is maintained to record small expenses such as postage, stationery, telegram. Petty cash book is maintained by the petty cashier. Read this article to learn about the types and advantages of subsidiary books. The book in which all cash transactions either cash is received or paid are primarily recorded according to dates, is called cash book. The petty cash book is maintained by separate cashier known as petty cashier. As the petty cashier has to account for his expenses, before he can draw further sums. As head cashier check the accounts of previous month and gives advance for the coming month, does, errors if any are reduced.
Advantages, disadvantages, and the pex alternative. A s the petty cashier has to produce to the chief cashier the petty cash book for inspection, it acts as a healthy check on the petty cashier. Every time when the person who control the bank accountdisbursement to petty cash is able to have a closer internal check on the actual petty cash expenditure incurred. Petty cash, also known as cash on hand, refers to small amounts of cash kept on hand in a business. What are the advantages of using the imprest system. The importance of bookkeeping accounting for small businesses. Bookkeeping accounting will help you plan ahead for your business. A separate column is allotted for each type of expenditure. This is the only amount of cash that is not immediately deposited in the bank account after it is. Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. The petty cash voucher details are then entered in the petty cash book and the voucher filed away in numerical order so that it may be easily located if necessary. The petty cash book is a document in business used for recording misclenius expenditure this are the unplanned and shallow demands that may arise in the daily running of the business. The petty cash book will be maintained by a separate cashier known as petty cashier in the accounting field.
Most cash should be deposited right away in the bank, but a small amount can be kept on hand in a petty cash account earmarked for minor. Petty cash is an easy to understand and familiar method of paying for company expenses. A petty cashier makes a detailed analysis of petty payments and records under suitable heads, i. Maintaining a petty cash book can be simple as long as a person makes sure to keep up on transactions regularly. There are two primary types of entries in the petty cash book, which are a debit to record cash received. These petty cash expenses are recorded in the petty cash book.
Petty cash book maintains records of all petty payments analytically. Following are the various other benefits of maintaining a cash book. Petty cash book can be maintained either in a simple or in analytical way. To pay for small purchases which require cash, such as food for the office lunch or coffee supplies, or for parking. Petty cash accounting involves establishing a petty cash policy, setting up a petty cash log, creating journal entries, and reconciling the petty cash account. The following are the main advantages of maintaining a cash book. Petty cash book supplies information regarding petty payments. The check amount should be sufficient to handle most cash purchases for the time period you choose, but not so large as to encourage theft. The cash book can be maintained properly as petty transactions are maintained separately. A petty cash book records small cash transactions in separate accounts.
In a modern economy in which technology is a staple in corporate accounting, this journal resembles more an electronic repository of liquidity transactions than a physical, classic book. When a business doesnt provide access to company credit cards, or employees would rather not wait to be reimbursed for purchases, using petty cash is a simple alternative. In almost all businesses, the bulk of transactions related to cash receipts and payments. Accounting can be done manually or made easier with bookkeeping software and employee expense. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. Petty cash book format example definition explanation.
The preservation of petty cash book does not need particular knowledge of accounting. Petty cash book 2019, imprest system of petty cash. The imprest system of petty cash is used by most of the companies because of the following advantages. Petty cash is also the title of the general ledger current asset account that reports the amount of the companys petty cash. The advantages of treble column cash book are stated below, time and laborsaving a good deal of time and labor are saved because for maintaining a treble column cash book cash account, bank account and discount accounts are not needed to be prepared in the ledger. Most petty cash books are maintained by listing receipts and their purchase purpose. Petty cash is often used to pay for postage, small office supplies, and other small purchases. Petty cash book is the accounting book that is used for the purpose of recording the petty cash expenditure i.
The system is a form of managing petty cash in a business. Many expenses of small nature recorded in petty cash book, the number of transactions is reduced in the cash. Once you have the basics covered, you need to put money into petty cash. The imprest system reduces the chances of misuse of cash because the float can be immediately. It is both a book of original entry as well as a book of final entry. Small or large companies maintain 2 types of petty cash book for all cash transactions of a business. At the end of a period totals of all heads of petty expenses are transferred to a relevant ledger account. Petty cash book system are also called as imprest system. The advantages of using the imprest system are versatility, accountability, practicality, limitation of theft, ease of use and limitation of expenditure. Cashbook helps in effective cash management as management can know the balances of cash and bank at any time and take the necessary decisions accordingly. As the petty cashier has to account for his expenses, before he can draw further sums, the petty cash book remains up to date.
A s the petty cashier has to produce to the chief cashier the petty cash book for inspection. Accounting for petty cash explanation, related controls. The person who is maintaining petty cash book is called as a petty cashier. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced 2. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. You need to develop a set of policies or procedures dictating the handling of cash in your business to avoid problems such as theft and misappropriation. Petty cash book helps in making the records of cash transactions uptodate because of the division of labor in recording cash transactions. This is recorded as a separate account in the companys general ledger. Similar to other books of accounts, a cash book also has a debit. What is the importance of petty cash in a business. Note the analysis columns that enable the transaction to be recorded and analysed at the same time.
Petty cash book explanation, format, example, ordinary and imprest. The petty cash book accounts for the cash spent on this short term arising needs of the company and it is necessary for accountability for the expenditure on the. Petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check. Before the rise in the use of credit cards and charge cards, nearly all companies used petty cash accounts to allow employees responsible for purchasing small supplies to do so with minimal hassle. The advantages of petty cash system enumerated are as follows. The advantages of analytical petty cash book are given below.
An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. Using imprest, the petty cash of a company is kept at a constant rate. A petty cash is a cash book used to enter all small or petty expenses obtained. Petty cashier is a person, who maintains the petty cash book. All cash transactions are primarily recorded in it as soon as they take. What are the advantages of the petty cash book answers. What are the advantages of maintaining a petty cash book. Petty cash book supplies information regarding petty payments made on different heads more easily and quickly. Petty cash book helps in making the records of cash transactions uptodate because of division of labor in recording cash transactions.
Cash book definition, types accounting format of cash book. The main advantages of petty cash book publish your article. Thus, the book is part of a manual recordkeeping system. Cash book definition, explanation types and advantages. Outgoing cash flows range from vendor and service provider remittances to salary and tax payments. The difference between the total of the debit items and that of the total column on the credit represents the balance of the petty cash in hand. Surprise cash counts must be conducted time to time to ensure the accuracy of the cash balance stated in the petty cash register the amount of petty cash float should not be set too high since petty cash register does not form part of the double entry system, payments made through petty cash are subsequently posted into the cash ledger and the. Besides maintaining a main or general cash book, many companies also maintain a small cash book known as petty cash book to record small day to day expenditures of the business petty cash book is a type of cash book that is used to record minor regular expenditures such as office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc. Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively. Petty cash book helps in making the main cash book more informative, clean and clear by including only major transactions. The firm may adopt imprest system of maintaining petty cash. Learn more about petty cash expense management, and decide which system is right for your business. Solved explain the major advantages and disadvantages.
The description of each expenditure is recorded in particulars column but the head of expenditure recorded in divide column the major advantage of maintaining analytical petty cash book is that each payment is not necessary to be posted to the ledger individually. The importance of a cash book in accounting bizfluent. What are the advantages of a imprest system for petty cash. Petty cash is the small cash reserves that businesses keep on the. Explain the major advantages and disadvantages of a business owner with minimal accounting experience maintaining the companys books instead of hiring an accountant. Petty cash book explanation, format, example, ordinary. Time wastage minimization under this columnar imprest petty cash book petty expenses are not needed to be posted in the relevant ledger account again and again. Required a state two reasons for maintaining a petty cash book. Petty cash is the small amount of cash that is kept on hand by a company to pay for minor, inexpensive purchases during the normal course of operations. Petty cash book is an accounting book used for recording expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc these are expenses which are incurred day after day.
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