Such payments include postage, reimbursement to employees for small purchases of office supplies and numerous similar items. The cash receipts and disbursements method is a budgeting process. Imprest petty cash system also minimizes the probability of any error which can occur during. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers. When cash transactions are recorded in the journal a lot of time and labour will be involved. The more documented petty cash expenses, the more your deductions, and the lower your. Petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check. Petty cash book format example definition explanation.
Petty cash book is an accounting book used for recording expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc these are expenses which are incurred day after day. Heres how you can set up an effective, easytomanage petty cash system. Petty cashier is not allowed to keep idle cash with him if the float is found to be more than adequate. In some cases, a company can even use this process to create income statements and other reports for future use. The importance and advantages of petty cash fund are as follows. Is a person who received money in order to meet petty expenditures. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. Thus we see that a cash book is the mixture of journal and ledger. Effectively managing the petty cash helps us control various expenses as well as compare miscellaneous expenses from period to period. Limits discretionary spending and preventing small purchases from snowballing into a significant annual expense. The main advantages of petty cash book publish your article.
Marks the advantages of using the imprest system are. Meaning of petty cash book and advantages of keeping petty. Petty cash is an easy to understand and familiar method of paying for company expenses. It is possible to find out daily cash and bank balance. A s the petty cashier has to produce to the chief cashier the petty cash book for inspection. As the petty cashier has to account for his expenses, before he can draw further sums. By this system a specified amount known as float is left with the petty cashier for petty expenses. What are the advantages of the petty cash book answers. Advantages and disadvantages of analytical petty cash book qs. The importance of a cash book in accounting bizfluent.
These include the money that comes into the vaults of the companies from diverse of clients, bank savings accounts and supplier sources, through discount programs. Advantages to using petty cash petty cash is an easy to understand and familiar method of paying for company expenses. Petty cash book is maintained by the petty cashier. Notes on petty cash fund grade 10 accountancy petty cash. Cash book also serves the purpose of book of original entry as well as ledger. A cash book is a document in which the cash transactions of corporate accountants and especially the auxiliary and junior accountants, are recorded. The most important part of a petty cash system is the documentation of each transaction. Thus, the book is part of a manual record keeping system. Maintaining a petty cash book can be simple as long as a person makes sure to keep up on transactions regularly. The advantages of using a petty cash book are as follows. Disadvantages of petty cash your business arizona republic. Advantages, disadvantages, and the pex alternative. As its name indicates, cash accounting is primarily concerned with one thing. Below are the main advantages of using cash accounting for financial reporting and tax purposes.
Cash books are irreplaceable for the purpose of keeping track of all payments and receipts received within a business. Or is the book which used to record the small expenditure which incurred by the businessorganization for a certain period of time such as day to day, week to week or month petty cashier. Advantages of petty cash book it relieves the cash book of numerous entries for minor payments. Is there a better way to solve the small expenditure dilemma. Petty cash is a comprehensible and common method of paying for business operating cost. But, in every business a number of petty small payment like that for postage, carriage, stationery, entertainment, cartage, conveyance etc. One is that the cash is limited so the chances of losing money are limited. Cash accounting can also be costeffective, especially if your business structure is a sole proprietorship or partnership. Is the cash book which used to record small expensesexpenditure which take place from time to time within the business. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. What are the advantages of a imprest system for petty cash. It helps the proprietor to know the cash and bank balance at any point of time. Cash and bank transactions can be recorded in cash book.
Petty cash funds are routine expenses that involve the insignificant amounts of money not eligible for credit card and cheque payments. Petty cash is a small amount of cash that any business can keep on their premises in a lockable container. To avoid this all cash transactions are straight away recorded in the cash book which is in the form of a ledger 2. Many expenses of small nature are recorded in petty cash book.
Causes for difference between cash book balance and pass book balance. In most cases, the petty cash book is an actual ledger book, rather than a computer record. Here we discuss the format of petty cash book, types of petty cash systems including the ordinary and imprest system along with its advantages and disadvantages. It is a systems off petty cash book where a person petty cashier is given a fixed amount. By watching this video you will understand how to record all the entries in the petty cash voucherreceipt book. Understand how the imprest system works in the petty cash book. Petty cash should be properly controlled with a petty cash log and accurately entered into the bookkeeping system in exactly the same way you would maintain a bank account.
It reduces the need to issue checks thereby reducing the work of the head of accountsaccountant as it is usually managed by. It is an accessible, convenient way to pay for small purchases. The system is a form of managing petty cash in a business. It helps the senior accounts officer or chief cashier to concentrate on more important work by leaving the keeping of the petty cash to the petty cashier. The record of petty cash is checked by the cashier periodically, so that a mistake, if committed.
Read this article to learn about the meaning and preparation of analytical and imprest system of petty cash book. In a modern economy in which technology is a staple in corporate accounting, this journal resembles more an electronic repository. Make sure you are taking advantage of all those petty cash transactions. Keeping large amounts of petty cash may also increase the likelihood of theft in your business. Most cash should be deposited right away in the bank, but a small amount can be kept on hand in a petty cash account earmarked for minor. When petty cash is easy to get to employees, it is a suitable way to pay for little purchases. The importance of bookkeeping accounting for small businesses. Advantages of the imprest system of keeping petty cash the petty cash book is used to record small payments. The advantages of using the imprest system are versatility, accountability, practicality, limitation of theft, ease of use and limitation of expenditure. Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. Using imprest, the petty cash of a company is kept at a constant rate.
It relieves the cash book and the chief cashier of the burden of recording tiny. In large business concerns, the petty cash book is maintained in columnar or analytical form, with a separate column for each usual item of expense and a column for. Why petty cash is important for your business finances. You need to develop a set of policies or procedures dictating the handling of cash in your business to avoid problems such as theft and misappropriation. The imprest system principles of accounts singapore. As head cashier check the accounts of previous month and gives advance for the coming month, does, errors if any are reduced. A petty cash book, therefore, serves the purpose of a ledger, keeping track of all business payments made on a small scale. Petty cash accounting procedures reconciliation uses. The advantages of the imprest system are as follows.
It saves the chief cashiers time since a junior handles these petty payments. By keeping track of all petty cash transactions no matter how petty you have records to back up deductions for those small business expenses. Documenting transactions is the way a business documents business expenses for tax purposes. Receipts are recorded on the debit the left hand side, and payments are recorded on the credit right hand side. Learn more about petty cash expense management, and decide which system is right for your business. As the petty cashier has to account for his expenses, before he can draw further sums, the petty cash book remains up to date. Petty cashier is not allowed to keep idle cash with him if the float is found to be more. What are the advantages of maintaining a petty cash book. It facilitates for posting petty transactions in the bank cash book and budget sheet. Besides maintaining a main or general cash book, many companies also.
Meaning of petty cash book, its importance and advantages. Petty cash book system are also called as imprest system. A cash book is a type of subsidiary book where cash or bank receipts and cash or bank payments made during a period are recorded in a chronological order. What are the main advantages of maintaining cash book. Forecasting your business needs ahead and planning for purchases and other business. Petty cash book explanation, format, example, ordinary and imprest.
At the end of a period totals of all heads of petty expenses are transferred to a relevant ledger account. Petty cash is a small amount of money for small expenses. The petty cash fund is an accounting tool that helps you to manage and track small purchases that are not appropriate to make a check payment or using your credit card. Advantages and disadvantages of analytical petty cash book. As head cashier checks the accounts of previous month and gives advance for the. Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively. Advantages of the petty cash book imprest system under this petty cash system method, the actual requirement of cash is realized effectively.
There might be a petty cash drawer or box in each department for. Petty cash book can be maintained either in a simple or in analytical way. Need and importance of bank reconciliation statement. Here are some advantages and disadvantages to using petty cash as an expense management solution. How to set up and manage petty cash, including setting up a petty cash box. This type helps in managing and accounting for petty cash.
What is the importance of petty cash in a business. In order to reduce the burden on the cashier, a separate book called petty cash book is maintained for recording all such small payments. Besides maintaining a main or general cash book, many companies also maintain a small cash book known as petty cash book to record small day to day expenditures of the business petty cash book is a type of cash book that is used to record minor regular expenditures such as office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc. Petty cash book 2019, imprest system of petty cash. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established during an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers. At the end of the period, let say, a month, an amount equal to the amount he has spent is given back to the cashier to restore his cash at hand to the original amount held. Of petty cash is used by most of the companies because of the following advantages. What is petty cash and how to manage and record it. Petty cash book maintains records of all petty payments systematically. Rather than keeping cash acoount and bank account apart from each other, double column cash book enables us to keep these two accounts side by side. You may learn more about accounting basics from the following articles ledger account practical examples. Outgoing cash flows range from vendor and service provider remittances to salary and tax payments.
Keeping a petty cash book prevents clustering of the cash book with minor expenses. What are the advantages of using the imprest system. Petty cash book the cash book as seen above is used for recording all major payments. The amount of petty cash also known as the petty cash fund varies by company or organization. It saves labour to a considerable extent as it enables the monthly. The imprest petty cash system is a method of accounting for petty cash expenses. In the days when we paid for all small business transactions in cash, it was necessary to be intentional about keeping track of. It has been tried and tested and is an efficient method. The main advantages of imprest system of petty cash are as follows. In the 21st century, we have better ways to pay for small business purchases and keep track of them. Many expenses of small nature recorded in petty cash book, the number of transactions is reduced in the cash.
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. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments. Double column cash book or two column cash book consists of two columns of amount on each side to record cash and bank transactions. The following are the advantages of keeping the petty cash book. Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. By keeping a check on the amount refunded to the petty cashier, it is. 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. Companies use actual information for cash collections and payments to create a budget. The person who is maintaining petty cash book is called as a petty cashier.
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