Petty cash book can be maintained either in a simple or in analytical way. Why petty cash is important for your business finances. Preparation of main cash book it facilitates preparation of main cash book quickly and easily by minimizing the number of small cash transactions. There might be a petty cash drawer or box in each department for. Outgoing cash flows range from vendor and service provider remittances to salary and tax payments. Such payments include postage, reimbursement to employees for small purchases of office supplies and numerous similar items. 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.
What are the advantages of the petty cash book answers. What is the importance of petty cash in a business. There are two primary types of entries in the petty cash book, wh. Cash accounting can also be costeffective, especially if your business structure is a sole proprietorship or partnership. The petty cashier of john and james company paid cash for the following expenditures during march 2018. The double column cash book also known as two column cash book has two money columns on both debit and credit sides one to record cash transactions and one to record bank transactions. By keeping a check on the amount refunded to the petty cashier, it is. As the petty cashier has to account for his expenses, before he can draw further sums, the petty cash book remains up to date. As the petty expenses are recorded by petty cashier hence the labor.
Cash book could be a checking or other type of money access account. Documenting transactions is the way a business documents business expenses for tax purposes. Journal is an integral part of book keeping which is the starting point of accounting and it records all the business transactions whereas the petty cash book records the transaction related to the cash account. Besides the three incentives to retain cash, the working capital sound management also require retention appropriate quantity for achieving a set of specific advantages, including. Using imprest, the petty cash of a company is kept at a constant rate. A petty cash book gives management a record of all the little. Petty cash book system are also called as imprest system. Petty cash book helps to minimize errors and frauds because it is checked regularly and reported timely. Marks the advantages of using the imprest system are. Advantages to using petty cash petty cash is an easy to understand and familiar method of paying for company expenses. At end the firm reimburses him the amount paid by him so that the balance of cash with him. Petty cash book helps to keep the main cash book in a compact form because numerous entries for small and petty items are recorded in the petty cash book itself. Petty cash book supplies information regarding petty payments made on different heads more easily and quickly.
Petty cash book relieves the main cashier because it is prepared by the petty cashier. The advantages of analytical petty cash book are given below. Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively. Meaning of petty cash book and advantages of keeping petty. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced. By keeping track of all petty cash transactions no matter how petty you have records to back up deductions for those small business expenses. 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. Petty cash book meaning, cash book vs petty cash book.
The person who is maintaining petty cash book is called as a petty cashier. The person who is responsible for the recording the receipts and the payments is known as the petty cashier. Meaning of petty cash book, its importance and advantages. Petty cash book explanation, format, example, ordinary and. When creating a petty cash account, be sure to document the origin of the cash you use to start with, and also keep a petty cash book to track your every petty cash purchases. Sep 19, 2019 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. What are the advantages of maintaining a petty cash book. It is possible to find out daily cash and bank balance. Petty cash book 2019, imprest system of petty cash.
In other words, we can say that if we add a bank column to both sides of a single column cash book, it would become a double column cash book. Control over the petty cash occurs during the replenishment process. 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. The petty cashier is given a sum of money in the beginning of the period. Avoid making the petty cash accessible to all employees, as this. The advantages of using a petty cash book are as follows. At the end of a period totals of all heads of petty expenses are transferred to a relevant ledger account. In the company, the petty cash book is usually maintained by the administrative department of the company as the accounts departments are usually occupied by the larger business transactions and also the admin department is only responsible for such kind of expenses.
As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced 2. Limit access to the petty cash account to two people and store the cash in a tamperproof safe. The cash receipts and disbursements method is a budgeting process. Petty cash book is maintained by the petty cashier. Petty cash book maintains records of all petty payments systematically.
Oct 04, 2019 double column cash book or two column cash book consists of two columns of amount on each side to record cash and bank transactions. In an imprest system, the amount in hand plus the amount of all receipts should be equal to petty cash balance. Management will decide what kind of store exactly needed according to their size of business. What are the main advantages of maintaining cash book. For this purpose, a petty cashier is appointed by the firm, to pay for small payments usually below rs. Petty cash funds are routine expenses that involve the insignificant amounts of money not eligible for credit card and cheque payments. Main cashier can focus on other major financial transactions of the business. Advantages of petty cash book the main benefits or advantages of petty cash book can be pointed out as follows. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments. However, you might have certain types of income or expenses that you have to record in this cashbook to keep your bank account in balance, but which need to be kept out of the profit and loss calculations, and are usually the.
Limits discretionary spending and preventing small purchases from snowballing into a significant annual expense. Cash book also serves the purpose of book of original entry as well as ledger. Petty cash book helps in making the major cash book more informative, clean and clear by including only major transactions. Lets say the office you work in has run out of coffee. Imprest system of petty cash is a system where the petty cashier is given a lump sum in cash often called a float keeping in view the possible needs of the business to meet its petty expenses for a stated period, e. It helps the senior accounts officer or chief cashier to concentrate on more important work by leaving the keeping of the petty cash to the petty.
Petty cash book explanation, format, example, ordinary. Many expenses of small nature recorded in petty cash book, the number of transactions is reduced in the cash. The petty cash custodian will cash the check and add the amount to the other cash. Petty cash book is based on the division of labour and works on imprest system. From the initiation of journal, the ledger account is prepared, with the help of which the final books of accounts of the company is. As head cashier check the accounts of previous month and gives advance for the coming month, does, errors if any are reduced.
Petty cash book definition the petty cash book is defined as relatively small amount of cash kept at hand for making quick payments for miscellaneous small expenses in the business concern. Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. The fundamental difference between the main cash book and the petty cash book is that only petty expenses are recorded in the petty cash book. Petty cash book 2019, imprest system of petty cash advantages. Frauds involving cash are likely to be minimized and where committed are likely to be detected at an early stage. The importance of a cash book in accounting bizfluent. The system is a form of managing petty cash in a business. Suppose a business wants to implement an imprest petty cash system and establish a fixed petty cash fund of 100 at the start of an accounting period. Advantages, disadvantages, and the pex alternative. The following points highlight the importance and advantages of petty.
Oct 14, 2017 keeping petty cash on hand for small purchases, however, allows employees to go around some of this red tape. To buy more you may have to fill out a form and then present it to the bookkeeper for a check. Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. Petty cash accounting procedures reconciliation uses. Avoid making the petty cash accessible to all employees, as this sets the stage for theft. The main advantages of imprest system of petty cash are as follows. Many expenses of small nature are recorded in petty cash book.
Some of the benefits of hiring them must be discussed in brief so that the companies indulge more in maintaining their own asset record book. Advantages of the imprest system of keeping petty cash the petty cash book is used to record small payments. Jul 16, 2019 petty cash describes small transactions of a business. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. 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. Apr 07, 2020 petty cash book the cash book as seen above is used for recording all major payments. Apr 26, 2020 the petty cash book is a recordation of petty cash expenditures, sorted by date. What are the advantages of a imprest system for petty cash. What are the merits or advantages of maintaining a petty.
Petty cash book format example definition explanation. 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. An imprest system is a method of utilizing loans as prevention from illegal activity like fraud or theft what is the different cash book and petty cash book. Sep 30, 2019 petty cash is an easy to understand and familiar method of paying for company expenses. Forecasting your business needs ahead and planning for purchases and other business miscellaneous will become easier with bookkeeping. It is an accessible, convenient way to pay for small purchases. Below are the main advantages of using cash accounting for financial reporting and tax purposes. Learn more about petty cash expense management, and decide which system is right for your business. What are the advantages of maintaining asset registers in. Oct 26, 2019 both centralized and decentralized store has some advantages and disadvantages.
For this purpose, a petty cashier is appointed by the chief cashier. 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 isnt so small anymore, so think of it as small amounts that you might not think about tracking. Petty cash book definition, types, format, examples. Petty cash book is a ledger book, which is used to record petty cash expenses formally in chronological order, with the date. An imprest system of petty cash is used for more control over cash in hand. During the period he makes payment out of this money. The advantages of the imprest system are as follows. It facilitates for posting petty transactions in the bank cash book and budget sheet.
Petty cashier is not allowed to keep idle cash with him if the float is found to be more than adequate. Rather than keeping cash acoount and bank account apart from each other, double column cash book enables us to keep these two accounts side by side. Heres how you can set up an effective, easytomanage petty cash system. Benefits of using petty cash for your small business. The petty cashier will record this amount on the debit side of the petty cash book while the chief cashier will record the same amount on the credit side of the main cash book. One of the primary uses of petty cash book is to keep a record of all minor expenditures for financial accountability reasons.
The term petty is used because it is small petite amounts of cash or cash like transactions. Apr 29, 2020 the advantages of the imprest system are as follows. Centralized system minimizes the employee costs and secure the materials but at the same time they have to pay big amount for transport cost for centralized inventory system. In the 21st century, we have better ways to pay for small business purchases and keep track of them. The importance and advantages of petty cash fund are as follows. The main advantages of petty cash book publish your article. It is another cash book which is maintained, generally, in large business concerns to reduce the burden of main cash book, in which numerous transactions involving petty small amounts are recorded. One is that the cash is limited so the chances of losing money are limited. The excel cashbook easy does not have a balance sheet, which helps to keep it easy. Companies use actual information for cash collections and payments to create a budget. Nov 27, 2019 the imprest petty cash fund is established. Bookkeeping accounting will help you plan ahead for your business.
What are the advantages of using the imprest system. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty. This actually helps all the companies in the long run in keeping a track of the fixed and current. But, in every business a number of petty small payment like that for postage, carriage, stationery, entertainment, cartage, conveyance etc. What is petty cash and how to manage and record it. Notes on petty cash fund grade 10 accountancy petty cash. Firstly, a wellprepared asset register presents a valuable planning tool for businesses of all sizes. The advantages of using the imprest system are versatility, accountability, practicality, limitation of theft, ease of use and limitation of expenditure. Advantages and disadvantages of analytical petty cash book qs. The advantages of petty cash system enumerated are as follows. The amount of petty cash also known as the petty cash fund varies by company or organization. In some cases, a company can even use this process to create income statements and other reports for future use. This separation of cash books has many advantages of the firm like.
Nov 23, 2015 understand how the imprest system works in the petty cash book. This type helps in managing and accounting for petty cash. 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. Advantages of imprest system of petty cash youtube. By watching this video you will understand how to record all the entries in the petty cash voucherreceipt book. The cash would normally be drawn from the cash checking account, and the journal to post the imprest petty cash would be as follows.
The importance of bookkeeping accounting for small businesses. Uses of petty cash book its a cash book used to enter daily petty expenses like cost of stationery, postage and xerox copy and so on. The petty cash fund is an accounting tool that helps you to manage and track small purchases that are not appropriate to make a check payment or using your credit card. As its name indicates, cash accounting is primarily concerned with one thing. 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. It helps the senior accounts officer or chief cashier to concentrate on more important work by leaving the keeping of the petty cash to the petty cashier. In most cases, the petty cash book is an actual ledger book, rather than a computer record. These are expenses which are incurred day after day. Keeping a petty cash book prevents clustering of the cash book with minor expenses.
A petty cash book, therefore, serves the purpose of a ledger, keeping track of all business payments made on a small scale. Thus, the book is part of a manual record keeping system. The imprest system master principles of accounts poa. Keeping large amounts of petty cash may also increase the likelihood of theft in your business. Double column cash book explanation, format, example. Cash and bank transactions can be recorded in cash book. Petty cash book is a cash book in which the petty cashier records petty cash expenses.
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