When it comes to managing small day-to-day expenses in a business, petty cash plays a significant role. It provides a convenient way to handle minor expenses without the need for complex accounting procedures.
One essential tool for maintaining control and tracking petty cash transactions is the petty cash book. In this blog, we will delve into the concept of the petty cash book, its types, and best practices for effective cash management.
So, let's get started!
A petty cash book is a ledger used to record and track petty cash transactions in an organization.
It serves as a detailed record of cash inflows and outflows, ensuring transparency, accuracy, and accountability in managing small expenses.
The petty cash book provides a snapshot of how the petty cash fund is being utilized and helps in the reconciliation process.
Here are the three different systems that are used to maintain petty cash in organizations. The systems are:
In the open system, the petty cashier is given a lump sum of money for expenses. After spending the money, the cashier is required to keep track of the expenses and collect receipts.
At the end of a specific period, usually a week or a month, the cashier submits the accounts along with the receipts to the main cashier or the finance department for approval and reimbursement.
In the fixed petty cash system, the chief cashier provides a fixed amount of money to the petty cash cashier for a specified period, such as a week or a month.
Once this amount is exhausted, the petty cash cashier must submit an account of the expenses to the chief cashier in order to receive reimbursement.
The fixed amount remains the same for each period.
The imprest system is the most commonly followed system for maintaining petty cash. Under this system, the total amount of money required for petty expenses during a specific period, such as a month, is calculated in advance.
This total amount, known as the imprest cash, is provided to the petty cash cashier. The cashier is responsible for keeping track of expenses and maintaining records.
At the end of the period, the cashier submits a detailed account of the expenses and is reimbursed for the exact amount spent. The cash provided at the beginning of each period is replenished to bring it back to the original imprest amount.
| Date | Description | Amount Spent | Replenishment | Balance |
|---|---|---|---|---|
| 01/01/2023 | Office Supplies | $50.00 | $50.00 | |
| 05/01/2023 | Refreshments | $20.00 | $30.00 | |
| 10/01/2023 | Taxi Fare | $15.00 | $15.00 | |
| 15/01/2023 | Stationery | $30.00 | $45.00 |
The tabular format provide a clear and organized layout for recording petty cash transactions in imprest petty cash system. You can easily fill in the relevant information in each column, including the date of the transaction, description of the expense, amount received or spent, replenishment amount (for Imprest Petty Cash Book), and the resulting balance.
Here's a tabular representation of each system for maintaining petty cash along with examples:
| System | Description | Example |
|---|---|---|
| Open System/Ordinary System | The petty cashier is given a lump sum for expenses. After spending the money, the cashier submits the accounts with receipts to the main cashier for approval. | In a small office, the petty cashier is given $200 at the beginning of the month. At the end of the month, they submit receipts and expenses totaling $195 for reimbursement. |
| Fixed System | The chief cashier offers a fixed amount of money for a specified period to the petty cash cashier. After exhausting the amount, the petty cash cashier submits the account for reimbursement. | In a retail store, the chief cashier provides $100 to the petty cash cashier every week. The cashier submits expenses totaling $90 at the end of the week for reimbursement. |
| Imprest System | The total amount of money for petty expenses for a specific period is calculated and given in advance to the cashier. After spending the imprest cash, the cashier submits a detailed account for reimbursement. | In a corporate office, $500 is provided to the petty cash cashier at the beginning of the month. The cashier submits expenses totaling $470 at the end of the month for reimbursement. |
These examples illustrate how each system operates in different scenarios and the process involved in maintaining and reimbursing petty cash.
These different systems for maintaining petty cash offer organizations flexibility in managing small expenses and ensuring accountability. The choice of system depends on the organization's needs, the frequency and nature of expenses, and the level of control and oversight required.
There are two main types of petty cash books commonly used:
The simple petty cash book is the most basic form of record-keeping for petty cash. It consists of a two-column format: one column for recording cash inflows (replenishments) and another column for cash outflows (expenditures).
Each transaction is documented with details such as the date, purpose, amount, and recipient. The simple petty cash book is suitable for smaller organizations with minimal petty cash transactions.
Example:
| Date | Purpose | Amount (Inflows) | Amount (Outflows) |
|---|---|---|---|
| 01/05/2023 | Petty cash replenish | $200 | - |
| 05/05/2023 | Office supplies | - | $25 |
| 10/05/2023 | Refreshments | - | $50 |
| 15/05/2023 | Travel expenses | - | $75 |
The columnar or analytical petty cash book is a more detailed version of the simple petty cash book. It includes additional columns to categorize expenses by different types, such as office supplies, travel expenses, entertainment, etc.
This allows for better expense tracking and analysis, providing insights into how the petty cash is being allocated across different expense categories.
Example:
| Date | Purpose | Office Supplies | Travel Expenses | Entertainment | Total |
|---|---|---|---|---|---|
| 01/05/2023 | Petty cash replenish | - | - | - | $200 |
| 05/05/2023 | Office supplies | $25 | - | - | - |
| 10/05/2023 | Refreshments | - | - | $50 | - |
| 15/05/2023 | Travel expenses | - | $75 | - | - |
To ensure efficient management of the petty cash book, here are some best practices to consider:
The petty cash book is a valuable tool for managing small day-to-day expenses in an organization. By accurately recording transactions and following best practices, businesses can maintain transparency, control, and accountability in their petty cash management. Whether you choose a simple or analytical petty cash book, the key lies in consistent and accurate record-keeping. So, establish clear procedures, designate a responsible custodian, and stay diligent in maintaining your petty cash book to streamline cash management and enhance financial control.