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Petty Cash Book Management Guide

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19 views8 pages

Petty Cash Book Management Guide

Uploaded by

ReneeLim
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Cambridge IGCSE Accounting Chapter 5 Petty cash book

Introduction
 Most businesses will keep some cash on the premises.
 This can be used to make payments when a cheque or bank transfer is not suitable.
 Cash must be kept in a secure place due to the risk of theft and fraud.
 These threats can be reduced by monitoring and recording cash transactions in petty cash book.

Petty cash book


 Petty cash book is used to record _______-value (petty) cash payments.
 Example: postage, stationery, cleaning, travelling expenses and small cash payments to credit suppliers
 Purpose of petty cash book
1. List the transactions for transferring to ledger accounts
2. Act as a ledger account for petty cash transactions
 Petty cash book is a book of prime entry and a ledger account (part of double entry system).

5.1 Maintaining a petty cash book


 It is not necessary to record small cash payments individually in the cash book or the ledger. This
reduces the number of entries in these books.
 Junior staff is given an amount of cash (float) and is assigned to maintain petty cash book. Senior staff
can concentrate on more important tasks.
 Chief cashier will check the petty cash book at regular intervals.
 Procedure to claim petty cash:
1. A staff should present the petty cashier the completed petty cash voucher which include the
purpose for which the money is required, the date, the signature of the person receiving the cash
and the voucher number.
2. After verification, the petty cashier will give the petty cash to the staff.

5.2 The imprest system


 Most petty cash are maintained using the imprest system.
 Under this system, the petty cashier starts each period (week, month etc.) with a fixed amount of money
 _______________________________ / ______________.
 During the period, payments are made out of this cash and are recorded in the petty cash book.
 At the end of the period, after the petty cash book is balanced, the chief cashier will provide petty cashier
with enough cash to ____________________ the imprest amount (float). The petty cashier therefore starts each
period with the _______ amount of cash.
 Benefits of imprest system:
1. The chief cashier is aware of exactly how much petty cash ________________ in each period.
2. The petty cash expenditure can be ____________________.
3. The amount of the imprest can be adjusted as necessary if it is too much or not enough. The
imprest system can also help to reduce _________________.

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Cambridge IGCSE Accounting Chapter 5 Petty cash book
The Layout of a Petty Cash Book
 A petty cash book resembles a ledger account with several money columns on credit side.
 These are known as __________________ column to divide payments into different categories.
 The number of columns and the main types of expenses will be determined by each individual business.
 There is a column on the credit side to record the voucher number to which the payment relates.

Layout of a petty cash book:

Exercise 1

2
Cambridge IGCSE Accounting Chapter 5 Petty cash book

Ming
Petty cash book
Total Date Details Vo. no. Total paid Cleaning Stationery Travel Ledger
received expenses accounts
$ $ $
$ $ $

3
Cambridge IGCSE Accounting Chapter 5 Petty cash book
Nominal ledger

Date Details $ Date Details $

Date Details $ Date Details $

Date Details $ Date Details $

Purchases ledger

Date Details $ Date Details $

Date Details $ Date Details $

4
Cambridge IGCSE Accounting Chapter 5 Petty cash book
Exercise 2

5
Cambridge IGCSE Accounting Chapter 5 Petty cash book
Exercise 3

6
Cambridge IGCSE Accounting Chapter 5 Petty cash book
Rahim
Petty cash book
Total Date Details Vo. no. Total paid Postage Cleaning Stationery Refreshments
received
$ $ $ $ $
$

7
Cambridge IGCSE Accounting Chapter 5 Petty cash book
Practice questions

Common questions

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Assigning junior staff to manage petty cash book entries allows senior staff to focus on more critical tasks. This delegation of responsibility not only reduces the load on senior personnel but also ensures that small transactions are recorded diligently, thereby maintaining accurate and up-to-date records without distracting from higher-order managerial functions .

The primary purpose of maintaining a petty cash book is to record low-value cash payments, such as for postage, stationery, cleaning, and travel expenses, which do not require bank transfers or cheques. It acts as both a book of prime entry and a ledger account within the double entry system, helps in reducing entries in the main cash book and ledger, and facilitates easy monitoring and recording of cash transactions to minimize the risks of theft and fraud .

The use of a petty cash voucher enhances accuracy and security by providing a documented trail for each transaction. Employees must present a completed voucher with details including purpose, date, and signature, which the petty cashier verifies before disbursing cash. This formal process ensures accountability and deters misuse or theft by maintaining precise records of petty cash disbursements .

The amount of the imprest fund can be increased or decreased based on the volume or frequency of small cash transactions within a given period. Adjusting the imprest amount allows businesses to align their cash resources with operational demands, ensuring adequate cash flow and minimizing surplus cash, thereby enhancing operational efficiency by allowing responsiveness to evolving business conditions .

The chief cashier is responsible for periodically reviewing the petty cash book and replenishing the fund to maintain the designated imprest amount. This role is crucial as it ensures transparency and accountability in petty cash usage. By overseeing the replenishment process, the chief cashier can uncover discrepancies and ensure funds are used for their intended purposes, thereby reducing the risk of financial malpractice .

A petty cash book ensures the integrity and reliability of a business’s financial records by providing a systematic method for recording small transactions that might otherwise be overlooked. By documenting each expenditure meticulously, it supports accurate financial reporting and reconciliation, enabling better tracking and management of business expenses, thus reinforcing the overall reliability of financial statements .

The imprest system simplifies petty cash management by starting each period with a fixed amount, the 'imprest,' and replenishing it at the end of the period to maintain a consistent fund. The chief cashier can readily monitor how much cash is used, ensuring transparency and reducing the risk of fraud. The system also allows adjustments to be made to the imprest amount, if necessary, creating flexibility and control over petty cash disbursements .

Typical expenses recorded in a petty cash book include postage, stationery, cleaning, travel expenses, and small cash payments to credit suppliers. Businesses prefer to record these separately to maintain a more organized accounting system, simplifying the handling of trivial transactions that do not require complex authorization or bank processing methods like cheques or transfers .

Neglecting to use a petty cash book or similar system could lead to inaccurate financial records due to overlooked small transactions, increased risk of theft and fraud, and inefficient tracking of cash flow, as these transactions might escape detailed scrutiny. This can result in poor financial management, potential legal ramifications for non-compliance with auditing standards, and might compromise the trustworthiness of a business’s financial reporting .

A petty cash book is structured similarly to a ledger account with multiple money columns on the credit side to categorize different types of payments such as cleaning or travel expenses. This structured layout helps in organizing and recording voucher numbers linked to the payments, thereby enabling easy tracking and categorization of expenditures. The number of columns and categories is customized to suit the needs of each business, enhancing its functionality .

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