The Petty Cash Book | Accounting for GCSE/IGCSE - Year 11 PDF Download

The Petty Cash Book

What is a petty cash book?

• A petty cash book is a record of small cash transactions. Businesses define what constitutes small amounts. For instance, transactions under $100 or $75 are commonly treated as petty cash transactions.
• When money is withdrawn from the petty cash account, a petty cash voucher is used to document the transaction, specifying the amount and particulars.

What is the layout of a petty cash book?

• Both a date column and a details column are typically positioned centrally.
• The debit side features a "total received" column, indicating the sum received per transaction.
• On the credit side, a "total paid" column indicates the overall amount paid per transaction.
• Analysis columns on the credit side categorize payments into different groups.
• Expense accounts and purchases ledger accounts each have designated columns.

How to Enter Transactions into the Petty Cash Book?

• The opening balance is recorded on the debit side.
• The debit side displays cash receipts, including small receipts from trade receivables and money transferred from the cash/bank account to top up the petty cash.
• The credit side illustrates cash payments, encompassing small payments for expenses and to trade payables.
• When entering a transaction on the credit side, it must be allocated to the appropriate analysis column(s).
• The total for each transaction should be placed in the "total paid" column.

How do I balance the petty cash book?

• Calculate the total for each column on the credit side.
• Highlight or underline the totals for the analysis columns. These balances are then moved to the relevant ledger accounts.
• Instead of transferring each transaction separately, you can transfer the total for each expense column to save time.
• Enter the ledger account details into the respective individual ledger accounts.
• Determine the variance between the total amount paid and the total amount received.
• Place this variance as the balance carried down on the side with the smaller total, typically the credit side.
• Conclude the balancing process for these two columns.
• Compute the totals for both the total received and total paid columns.
• Carry forward the balance to the beginning of the following month. The balance brought forward will consistently be on the debit side.

The Imprest System

What is the imprest system?

• The imprest system is a method utilized by companies to ensure that the funds in the petty cash account always match a predetermined amount known as the imprest amount.
• This reconciliation typically occurs at the beginning of each week or month to maintain financial accuracy.
• If the balance in the petty cash account is lower than the imprest amount at the start of a period, it gets replenished using cash or funds from the bank account.
• Conversely, if the balance exceeds the imprest amount, the surplus can be deposited back into the cash or bank account.
• The imprest amount is calculated as follows:
  • Current balance of the petty cash account
  • Plus the total value of petty cash vouchers for the current period
  • Minus the total amount of petty cash disbursed

Advantages of Using an Imprest System

• It sets a limit on the amount of cash which can be spent
• It helps managers monitor the amount of petty cash that is being spent
• It limits the amount of cash that could be mislaid or stolen