Small or large companies maintains two types of Petty Cash Book for all cash transactions of a business.
It depends on nature, volume and necessity of transactions of a business organization. Cash transactions might be of cash or cheque.
Petty Cash Book !?
The number of daily petty expenses of large business organizations such as paper, ink, conveyance, stamp expense etc. is so large that if these are recorded in the cash book, it creates wastage of time of the head cashier and makes the cash book unnecessarily voluminous.
In order to save the valuable time of the head cashier, to enable him to work comfortably and to avoid making the cash book unnecessarily voluminous petty cash system is introduced.
Petty expenses are recorded in petty cash book in chronological order of dates in lieu of cash book. The employee, who keeps the petty cash book, is called petty cashier.
A petty cashier receives a fixed amount of money from the head cashier with which he meets petty expenses of a certain period and records in chronological order of dates in petty cash book.
So, the book,
wherein day to day petty expenses for a particular period of a business concern, are recorded in chronological order of dates is called petty cash book.
Types of Petty Cash Book;
Petty cash book is of two types:
(1) Columnar petty cash book and
(2) Imprest petty cash book.
Columnar Petty Cash Book and its Preparation Process
Columnar petty cash book contains many money columns to record day to day expenditures. It has two sides – debit side and credit side.
Particulars of cash receipts and expenses are written together in single column known as particulars column and another column is used for writing dates of both debit and credit.
In debit money column the amount of cash received from head cashier is written.
Credit side contains many money columns as per requirement for recording expenses and the expenses are recorded in a classified way in chronological order of dates.
To ascertain total amount of money spent total money column is used in credit side for recording all expenses.
Money spent for purchasing asset or payment of debt is recorded in separate columns known as ledger column. There after total of money columns and total of all expense columns of credit side are drawn.
The difference between the amount of cash receipt and the total amount of cash payments is called balance. This balance is always a debit balance.
Therefore the primary book wherein the money received from head cashier and the amount of expenditure for a particular period of an organization are recorded in chronological order of dates in separate money columns of both sides, is called columnar petty cash book.
Imprest Petty Cash Book
Like columnar petty cash book it also contains many money columns in credit side and one money column in debit side and a particular column and a date column are also similar to that of columnar or analytical petty cash book.
Under this imprest system of petty cash book the head cashier provides a fixed amount of money to the petty cashier in advance for meeting expenditure of a particular period.
At the end of the period the petty cashier submits to the head cashier a statement of expenditures incurred by him. It should be noted that the amount of expenditure in the hands of petty cashier cannot exceed the amount he receives.
The head cashier after proper verification of the expenditures pays an amount equal to the amount spent by the petty cashier again in advance to equalize the prefixed fund of petty cashier. Maintaining cash book under the stated system is called inprest petty cash book.
on 1st Jan. 2003 head cashier pays $500 to petty cashier as advance. In the month of January the petty cashier spent $400 and submits a statement of expenditure for the spent amount to head cashier.
The head cashier pays him again $400 for meeting expenditure of February.
Petty cashier starts his petty cash book on 1st February with a cash balance of $500.
In this way at the beginning of every month the petty cashier will possess $500 as imprest fund to meet up day to day expenditures.
Advantages of Imprest Petty Cash Book
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.
At the end of a period totals of all heads of petty expenses are transferred to relevant ledger account. This process saves the valuable time of the cashier.
- Labor minimization: Under imprest petty cash system as the totals of different heads of expenditures are posted in ledger accounts after a certain period, the work load of cashier is minimized to a great extent.
- Control over petty expenses: Under imprest petty cash book system petty cashier submits a statement of expenditure to the head cashier at an interval of a certain period and there after receives fund from him for further expenses.The head cashier before funding again examines the previous expenses. Thereby possibility of fraud and forgery is removed and there remains control over expenses.
- Verification of arithmetical accuracy of petty expenses: Under imprest petty cash book system petty expenses are recorded in chronological order of dates.After a certain period amount of total expenses is sorted out and amount of every heads of expenditure is totaled separately.Total of expenses recorded in various columns is equal to the total of expenses of total columns which proves that recording of expenses is arithmetically correct.
- Opportunity of petty cashier to work comfortably: As the petty cashier does not collect cash, he can pay more attention over the expenses incurred and their proper recording.
- Determination of expenses: Under this system it is possible to ascertain and know the amount of expenses of same nature of each column separately for a particular period of time.
- Fixed imprest fund: The head cashier remains always aware of the cash given to petty cashier under this system.The head cashier does not have any problem to know the exact cash of the petty cashier as a fixed amount of cash always lies with petty cashier. In it the head cashier can comfortably close accounts.
- Prevention of misappropriation: Under this system it is almost impossible on the part of petty cashier to misappropriate the fund because the head cashier does have full control over the petty cashier.