In addition to keeping a primary or regular cash book, several businesses also keep a smaller cash book called a petty cash book to track the company's daily little expenses. For all money transfers in a firm, larger and smaller businesses keep two distinct types of petty cash books.
They keep up with it so that all financial transactions may be easily, quickly, and accurately recorded. It varies with the type, quantity, and need of a business firm's operations. Financial transactions may involve checks or cash.
Did you know?
The word 'petty cash' is directly derived from the word 'petty', meaning 'insignificant'; 'of secondary importance. "Petty cash" is a small amount of cash that is kept aside for small purchases too small for a cheque to be made out and cashed.
What Is a Petty Cash Book?
Let’s start with petty cash book meaning. A petty cash book is a sort of cash account utilised to keep track of little, routine expenses like workplace tea, bus ticket, petrol, newsprint, hygiene products, fasteners, casual labour, etc. Instead of using cheques, these minor purchases are typically made with coins and cash. A petty cashier relates to an individual in charge of handling petty cash and keeping track of it in a PCB. The chief bookkeeper, often known as the lead or primary cashier and is in charge of the heavy-duty of keeping track of daily receipts and disbursements totalling vast numbers of rupees in the central cash book of the organisation.
Hence, he typically assigns an accountant, clerk, or another trustworthy employee to manage minor daily financial transactions. A petty cash book does have debit and credit sides, just like a standard cash book. The petty bookkeeper enters all purchases on the debit column of the PCB and remaining all expenditures into the credit column.
Petty Cash Book Format
Below is the Petty cash book format for your reference.
Types of Petty Cash Book
There are typically two types of Petty Cash Books:
Columnar Petty Cash Book
The below statements can help you understand Columnar Petty Cash
Book more clearly:
- They use numerous money sections in CPSB to keep track of everyday expenses. There are 2 sides to this PCB: a debit end and a credit entry.
- The details of cash revenues and costs they record in a solitary column called the specific column, and the dates, including both debit and credit entries, they record in another column.
- The sum of cash received from the chief accountant is put in the debit amount field.
- According to the specifications for documenting expenditures, the credit column also includes a lot of cash columns. After that, they document the expenses in a specific category and sequentially order.
- There is a requirement for the overall money field on the credit column to enter each expenditure to calculate the total amount spent.
Also Read: Profit and Loss Account & Statement
Analytical Petty Cash Book
The below points provide information on the Analytical petty cash book:
- Analytical petty cash book includes numerous monetary columns in which they record on the credit part, a single cash field on the debit field, a specific column, and a date field that is similarly comparable to those of the columnar, as was previously described.
- Following this technique of petty cash book, the chief bookkeeper gives the petty treasurer specific amounts of cash in ahead for completing the expenditures for a specific period.
- The chief cashier receives a statement from the petty treasurer detailing his expenses after the term.
What Is a Petty Cash Book Example?
Let’s look at one example of a petty cash book.
Petty teller of the John and James Company completes paying the payments of Mar- 2018.
- Mar 1: Petty cash ₹50; balance carried forward.
- Mar 1: The chief cashier repaid ₹200 for the previous month's small expenses.
- Mar 5: Spent ₹25 on some liquid stuff for cleaning.
- 10 Mar: ₹20 was spent on a van wash.
- 13 Mar: Spent ₹15 on pencils and pens..
- Mar 17: ₹35 was spent on fuel
- 20 Mar: ₹55 sporadic work payment
- Mar22: ₹10 donations to the nonprofit SBA.
- Mar 30: Spent ₹5 on a broom for the office.
Assume that the John and James Company cashier uses a petty cash imprest system to document all the above expenditures.
Advantages of Petty Cash Book
- One can meet the real money requirement successfully with this petty cash system solution. It issues the initial cash to the relevant authority and can also be quickly raised or lowered after studying the timeframe and the frequency of expenditures, for instance, when ₹2,000 is really only spent upon these things monthly.
- As the chief accountant regularly examines it, it also reduces the likelihood of any accounting errors.
- This has been a tried-and-true approach that is quick and effective.
- The company may save money with this strategy. To determine how much money they require and where the business may reduce wasteful expenditures on the small purchases, they examine the incurred sum in petty cash expenditures carefully and also review them regularly.
- The Imprest petty cash system also enables employees to balance a budget skillfully so they can demonstrate their value to their superiors and enhance the chances of potential cash administrators in the future.
Disadvantages of Petty Cash Book
- Although this approach frequently uses resources that may be doing some other effective and valuable activities, it is occasionally cumbersome, time-consuming, and resource-intensive.
- Routine maintenance reviews are compulsory. Every amount the document needs to map against each spending; this can take a while if the company has a lot of transactions.
Also Read: All You Need To Know About Cash Deposit Slip
Operation of Petty Cash
The chief cashier issues a check to the petty bookkeeper when they require cash. They document this cheque in the primary Cash Book's transactions section. The petty bookkeeper collects money in exchange for the bank's check and enters the check-in the PCB's payments column. The petty bookkeeper creates a petty cash ticket whenever there is a requirement for a transaction from the petty cash account. Even before the petty bookkeeper pays the bill, this ticket needs the approval of a responsible officer. The petty teller enters the settlement date, payment information (in the specific column), PCV code, and ticket value prior to releasing the payment.
They write the monthly number after the letter "1" on the labelling of the very first PCV. For instance, the very first June coupon numbering starts as 1/6, followed by 2/6, 3/6, and so forth.
Posting Petty Cash Book to Ledger,
The primary cashier will create check vouchers whenever the petty bookkeeper asks for repayment just at the close of every month. They mention the list of the sum of the different payment assessment columns from the
PCB on the check vouchers. Think about the following, for instance:
The cashier enters the following entry in the primary cash book whenever a check (for ₹423.00) is given to the petty bank teller:
- Upon that credit field of the money book (banking column), the sum of ₹423.00 is shown as payment.
- They deduct the salary account in the journal by ₹115.20, followed by the transportation accounts (₹42.30), stationery account (₹90.20), employee tea (₹25.30), and phone (₹150.00).
As a result, the overall accounting equation is in line. In other terms, dual entry accountancy does not include the PCB. The PCB occupies a position akin to a supplementary book. People usually assume that the petty bookkeeper has real cash on hand or already paid PCVs equivalent to the amount of the imprest accounts.
Also Read: Trial Balance: Rules Explained With Examples
A PCB is a manual process for keeping track of expenses that is frequently rife with mistakes. Additionally, particularly in big businesses, keeping the accounts and recording every transaction can become tedious. To combat this, several businesses are abandoning the outdated bookkeeping methodology. Contemporary bookkeeping techniques, such as company bank cards or tally tools, which are extremely effective techniques for documenting little and significant commercial transactions, nowadays are replacing the traditional ones. To sum up, we may say that the petty cash book of documenting has become less significant over the period. However, it might still be a helpful tool to document businesses in places where they do not use contemporary technology.
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