A cash book acts like both a journal and a ledger for cash transactions. A petty cash book is just another kind of cash book that records petty cash transactions, i.e. small recurring payments. Let us learn about the petty cash book and the various systems of maintaining the said account.
Petty Cash Book
When running a firm you can imagine the number of transactions that occur in a day. There are especially many petty cash transactions, i.e. expenses of small amounts that are usually recurring in nature. These are your everyday expenses for food, conveyance, stationary, ink for printers, postage, etc. So instead of recording all such transactions in the cash book, we record them in a petty cash book.
So petty cash is an account that records all the petty cash expenses in chronological and systematic order. The petty cashier is responsible for updating and maintaining the petty cash book. This separation of cash books has many advantages of the firm like,
- All petty expenses are maintained separately. So this system is more systematic and easier for auditing as well.
- Petty cash books will allow us to easily compare and efficiently control petty expenses.
- Recording all of these transactions in the cash book can get to be very tedious and cumbersome. And so this responsibility is divided between the cashier and the petty cashier. This division of work makes them both more efficient.
- This makes the cash book less voluminous and more informative and clean.
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Analytical Petty Cash Book
Other than the normal petty cash book, which resembles a normal cash book, there are two other types of petty cash books. One such type is the analytical petty cash book. In such a cash book there are pre-existing columns for the usual expenses that recur quite frequently for an organization. So if an organization has daily expenses for food, stationery, postage, etc. these will be individual columns in the petty cash book.
One major advantage of this analytical system is that it saves time. Also, it will enable the accountant or the management to analyze the expenses under the different various heads. This makes comparisons easier as well.
Imprest System of Petty Cash
The second system of petty cash is the imprest system. Here the petty cashier is given a lump sum amount of money at the beginning of the accounting period. This period could be a week, a month or even sometimes a day. This money given in advance is known as a float.
Then at the end of the period, he will tally his expenses. He will be reimbursed for the exact amount of the total expenses. This will bring his cash in hand to the original figure. SO say for example the petty cashier has 1000/- at the start of the week. Then during the week, he spends 880/- on various expenses. At the end of the week, the accounting department will give him the 880/- back. So his cash balance at the beginning of next week will again be 1000/-.
Solved Example for You
Q: What are the nature of transactions that are recorded in the petty cash book
Ans: As the name suggests transaction of petty nature are recorded in the petty cash book like your everyday expenses for food, conveyance, stationary, ink for printers, postage, stamp, etc.