The Petty Cash Book

The Petty Cash Book

The petty cash book

What is a petty cash book?

• A petty cash book is used to record transactions involving small amounts of cash

  • The business will decide what they classify as small amounts of cash

  • Exam questions commonly tell you to class transactions for anything up to $100 or $75 as petty cash transactions

• A petty cash voucher is used to record the transaction when money is taken from the petty cash account

  • It should state the amount and details

What is the layout of a petty cash book?

• There is a date column and a details column

  • These commonly appear once in the middle

• The total received column on the debit side states the total amount received for each transaction

• The total paid column on the credit side states the total amount paid for each transaction

• There are analysis columns on the credit side to separate payments into different categories

  • There are columns for the expense accounts and a column for the purchases ledger accounts

How do I enter transactions into the petty cash book?

• The opening balance is on the debit side

• The debit side shows the cash receipts

  • Small cash receipts from trade receivables

  • Money transferred from the cash or bank account to top up the petty cash account

• The credit side shows the cash payments

  • Small cash payments for expenses

  • Small cash payments to trade payables

• When you enter a transaction onto the credit side

  • You need to enter it in the appropriate analysis column(s)

  • Put the total for that transaction in the total paid column

How do I balance the petty cash book?

• Find the total for each column on the credit side

• Underline the totals for the analysis columns

  • These balances then get transferred to the relevant ledger accounts

    • You can transfer the total for each expense column rather than transfer each transaction separately

    • The entries for ledger accounts will need to be entered into the individual ledger accounts

• Find the difference between the total paid and the total received

  • Put this entry as balance c/d on the side with the smaller total

    • This will usually be the credit side

• Complete the balancing process for these two columns

  • Find the totals for the total received and total paid columns

  • Bring down the balance to the start of the next month

    • The balance brought down will always be on the debit side

The Imprest System

The imprest system

What is the imprest system?

• The imprest system is used by businesses to ensure that the money in the petty cash account is equal to a set amount

  • This amount is known as the imprest amount

  • This is usually done at the start of each week or month

• If the petty cash account is less than the imprest amount at the start of a period

  • Then it will be topped up using the cash or bank account

• If the petty cash account is higher than the imprest amount at the start of a period

  • Then the excess can be deposited into the cash or bank account

• The imprest amount will always be equal to:

  • The current balance of the petty cash account

  • Plus the total value of petty cash vouchers for the current period

  • Minus the total amount of petty cash received

What are the advantages of using an imprest system?

• It sets a limit on the amount of cash which can be spent

• It helps managers monitor the amount of petty cash that is being spent

• It limits the amount of cash that could be mislaid or stolen