Petty Cash Book:

Learning Objectives:

1. Define and explain petty cash book.

2. What is the imprest system of petty cash?
3. What are the advantages of Imprest system?
4. Prepare a petty cash book.

Definition and Explanation:

In almost all businesses, it is found necessary to keep small sums of ready money with the
cashier or petty cashier for the purpose of meeting small expenses such as postage,
telegrams, stationary and office sundries etc. The sum of money so kept in hand generally
termed as petty cash and book in which the petty cash expenditures are recorded is termed
as petty cash book.
In large business houses , the cashier has to handle every day a large number of receipts
and payments and if in addition to this he is further saddled with petty cash payments, his
position becomes embarrassing. Besides, it is most common to find with large commercial
establishments that all receipts and payments are made through bank. Since expenses like
postage, telegrams, traveling etc, cannot be made by means of cheques, the maintenance
of a small cash balance to meet these petty payments becomes all the more necessary.
A petty cash book is generally maintained on a columnar basis - a separate column being
allotted for each type of expenditure. The is only one money column on the debit side and
all sum received from time to time by the petty cashier from the chief cashier are entered in
it. The credit side consists of several analysis columns. Every payment made by the petty
cashier is entered on this side twice - Firstly it is recorded in the total column and then to
the appropriate column to which the expense is concerned. The total of the "total column"
will naturally agree with the total of all subsidiary columns. The difference between the total
of the debit items and that of the "total column" on the credit side at any time will represent
the balance of the petty cash in hand and this should tally with the petty cashier's actual
holding of cash.
The posting from the petty cash book to the respective accounts in the ledger are made
directly in total at the end of every month or any other fixed period.

The Imprest System:

The more scientific method of maintaining petty cash so for introduced into practice is the
imprest system. Under this system a fixed sum of money is given to the petty cashier to
cover the petty expenses for the month. At the end of a month the petty cashier submits his
statement of petty expenses to the chief cashier. The chief cashier on the receipt of such

statement refunds to the petty cashier the exact amount spent by him during the month,
thus making the imprest for the next month the same as it was at the beginning of the
current month.
It is to be noted that the amount of cash in the hands of the petty cashier is a part of the
cash balance, therefore it should be included in the cash balance when the latter is shown in
the trial balance and the balance sheet. It should also be kept in mind that petty cash book
is not like the cash book. It is a branch of cash book.

Advantages of Imprest System:

The main advantages of imprest system of petty cash are as follows:

1. 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.

2. As the petty cashier has to account for his expenses, before he can draw further
sums, the petty cash book remains up to date.

3. As the petty cashier cannot draw as and when he likes, it prevents unnecessary
accumulation of cash in his hand thus the chances of defalcation of cash are
minimised.

Format of the Petty Cash Book:

The following is the simple format of a petty cash book:
Amount
Receive
d

Date

Particulars

V.N.

Total

Postage

Printing and
Stationary

Cartag
Traveling Expenses
e

Misc.

Example:
Enter the following transactions in the columnar petty cash book of a cashier who was given
$100 on 1st March, 1991 on the imprest system:1991
March 2
" 2
" 3
" 3

Paid
Paid
Paid
Paid

for
for
for
for

postage stamps
stationary
cartage
postage stamps

8
10
4
6

"
"
"
"
"
"
"
"
"
"

8
12
18
23
25
26
28
29
30
31

Paid for paper

Paid for cartage
Paid for trips to office peons
Paid for ink and nibs
Paid for Tiffin to office peons
Paid for train fair
Paid for bus fair
Envelops and letter heads
Printing address on above
Taxi fare to manager

1
6
2
4
6
5
4
6
4
10

Solution:
Amount
Receive
d
$
$100

Date
1991
March1
" 2
" 2
" 3
" 3
" 3
" 12
" 18
" 23
" 25
" 26
" 28
" 29
" 30
" 31
" 31

Particulars

To Cash
By Postage
By Stationary
By Cartage
By Postage
By Paper
By Cartage
By Tip to peon
By Ink & nibs
By Tiffin to Peon
By train fair
By bus fair
By Envelops et.
By printing
By Taxi fair
By balance c/d

100

24
76

April 1 To Balance b/d

" 1
To Cash

V.N.

Total

Postage

8
10
4
6
1
6
2
4
6
5
4
6
4
10
24

100

14

Printing and
Stationary

Cartage

10

Traveling
Expenses

Misc.

1
6

6
5
4

6
4

25

10
10

19