Petty Cash Book
In this lesson, we will learn what is the Imprest System of petty cash, interpret and prepare the Petty Cash Book and post the data recorded to the respective ledger accounts.
The Petty Cash Book together with the four Special Journals, General Journal and Cash Book make up the books of prime entry of a business.
Related Lessons:
Purpose of Petty Cash and Petty Cash Book
Petty Cash is a small amount of cash kept in the business premise to pay for minor recurring expenditures quickly.
This helps the business to save time by not having to write a cheque or go through the bank account.
Petty Cash Book is a book used to record transactions involving petty cash funds.
It makes posting to the ledger easier because only the total amount is posted to the General Ledger, which helps to prevent the General Ledger from becoming overcrowded.
Imprest System of Petty Cash
Imprest System is a system for maintaining the petty cash with the following key features:
- A fixed amount called the imprest amount or float is maintained
- Small expenses are paid out of this float
- At the end of the period, usually a month, the float is reimbursed with the amount of petty cash paid out
- Petty cash will therefore start with the same amount at every beginning of the period / month
Petty Cash Book
The petty cash book records payments made from the petty cash, using the imprest system and it contains the following details:
1st column – Amount Received:
This records the amount of petty cash received for the period
2nd column – Date:
This records the date of each payment and the date of reimbursement to the float
3rd column – Details:
Records each type of payment or the method of reimbursement
4th column – Amount Paid:
This records the amount paid for each expense.
5th column – Category:
Under this column, the payments are further divided into several columns, with each column used for a specific recurring expense.
The total amount paid out (4th column) must be equal to the total amount recorded in the category (5th column).
The amount to be reimbursed is calculated by subtracting the total amount paid from the float amount, so that the imprest is restored to its original amount.
Journal Entries in Petty Cash Book
To start a petty cash fund:
Dr Petty cash
Cr Cash or Bank
To reimburse the petty cash fund for the month:
Only the total amount paid under each specific expense category is posted to the respectively expense account in the general ledger. Therefore, we debit the various expense accounts for the reimbursement of petty cash funds.
Dr Expenses
Cr Cash or Bank