Petty Cash Book

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 16, 2021

Petty Cash Book: Definition

A petty cash book is maintained to record small expenses such as postage, stationery, and telegrams. A separate column is used for each type of expenditure.

The difference between the sum of the debit items and the sum of the credit items represents the balance of the petty cash in hand.

A petty cash book also refers to the book in which small payments are recorded, which are not convenient to record in the main cash book.

Explanation

In all businesses, some payments are made by check for better control over cash. However, for the payment of small expenditures (e.g., stationery, travel, postage, and newspapers), paying by check is unreasonable.

In addition, the chief cashier in a large business is required to handle numerous large transactions on a daily basis. If they record petty expenses in the main cash book, then both the chief cashier and the main cash book will be overburdened.

To solve these problems, the chief cashier delegates responsibilities to another senior staff member to account for day-to-day small transactions. For this purpose, he is given a small amount and a separate book to record these small payments.

The book in which these small payments are recorded is known as the petty cash book. The funds used for small payments are known as petty cash, and the person responsible for making and recording these payments is the petty cashier.

Systems for Maintaining Petty Cash

Three different systems are used to maintain petty cash. These systems are:

  • Open systems (or ordinary systems) for petty cash
  • Fixed system for petty cash
  • Imprest system of petty cash

Open or Ordinary System of Petty Cash

Under this system, the petty cashier is given a lump sum to meet petty expenses. When the whole amount of petty cash is spent, the petty cashier submits the account to the chief cashier who again pays a lump sum to the petty cashier.

Fixed System of Petty Cash

Under the fixed system of petty cash, a fixed amount is given to the petty cashier for a fixed period of time.

At the end of fixed period, the petty cashier submits the details of petty expenses, and the chief cashier again advances a fixed amount for the next fixed period.

Imprest System of Petty Cash

This is the most scientific approach to maintain Petty Cash.

Under the imprest system, total petty expenses for a specific period are estimated and the amount is advanced to the petty cashier. This amount is known as imprest cash.

The petty cashier spends the imprest cash during the period. At the end of the period, the petty cashier submits the statements covering petty expenditures to the chief cashier.

The amount spent by the petty cashier is reimbursed, thus making up the balance to the original amount.

In this way, the petty cashier will begin every period with an amount equal to imprest cash, and the amount held by the petty cashier will never exceed this.

Advantages of the Imprest System

The imprest system has the following advantages:

  • Time savings for the chief cashier who is responsible for the main cash book.
  • Reduction of the chance of cash misuse because the petty cashier is not allowed to keep idle cash.
  • Reduction of the chance of misappropriation as the imprest cash is a small amount.
  • Errors are corrected quickly because the the chief cashier checks the petty cash record periodically.
  • Creation of opportunities for junior staff to learn how to handle money responsibly.

Types of Petty Cash Book

There are two main types of petty cash book:

  1. Simple Petty Cash Book
  2. Analytical Petty Cash Book

Simple Petty Cash Book

A simple petty cash book is just like the main cash book. Cash received by the petty cashier is recorded on the debit side, and all payments for petty expenses are recorded on the credit side in one column.

Format of a Simple Petty Cash Book

Simple Petty Cash Book Format

Example of a Simple Petty Cash Book

Record the following transactions in a simple petty cash book for the month of January 2019.

Simple Petty Cash Book Example

Solution

Analytical Petty Cash Book Solution

Analytical Petty Cash Book

An analytical petty cash book is the most effective way to record petty cash payments.

A separate column is assigned for each petty expense on the credit side. Whenever a petty expense is recorded in the total payment column, the same amount is recorded in the relevant petty expense column.

Format of an Analytical Petty Cash Book

Format of an Analytical Petty Cash Book

Example of an Analytical Petty Cash Book

Record the following transactions in an analytical petty cash book for the month of January 2019.

Analytical Petty Cash Book Example

Solution

Analytical Petty Cash Book Solution

Operation of Petty Cash

When a petty cashier needs money, the main cashier gives them a cheque. This cheque is recorded on the payments side of the main Cash Book.

The petty cashier receives cash against the cheque from the bank and records the cheque in the receipts column of the petty cash book.

When a payment needs to be made from the petty cash fund, the petty cashier prepares a petty cash voucher (PCV). This voucher must be authorized by a responsible officer before the petty cashier makes the payment.

Before issuing the payment, the petty cashier records the payment date, payment details (in the particulars column), the PCV number, and the amount of the voucher (in the total payment column and also in the relevant analysis column).

The first PCV of the month is labeled with the numeral 1, followed by the number of the month. For example, the first voucher of May would be numbered as 1/5, the next as 2/5, and then as 3/5, and so on.

Posting Petty Cash Book to Ledger

At the end of each month, when the petty cashier approaches the main cashier for reimbursement, the latter will prepare a cheque voucher.

The cheque voucher lists the total of the various payment analysis columns of the petty cash book. For example, consider the following:

Wages $113.20
Transport $41.80
Stationary $80.60
Staff Tea $26.40
Telephone $140.00
Total $402.00

When a cheque (for $402.00) is issued to the petty cashier, the entries made in the main cash book are:

  • The total, $402.00, is shown on the credit side of the cash book (bank column) as payment.
  • In the ledger, the wages account is debited by $113.20, the transport account by $41.80, the stationery account by $86.60, the staff tea account by $26.40, and the telephone account by $140.00.

Therefore, the total debits in the ledger agree with the credit in the main cash book. In other words, the petty cash book does not form a part of double-entry bookkeeping.

The position of the petty cash book is similar to a subsidiary book. The petty cashier is always assumed to hold cash equal to the imprest account in the form of actual cash or paid-up PCVs.

Connect with an expert

Hope this article has been a help in understanding about the features and uses of the petty cash book. If you have any more questions, communicate to a financial advisor in Spokane, WA or if you live outside the locale, browse through our financial advisor page to see one who can connect with you. 

 

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

42 thoughts on “Petty Cash Book”

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      • Hi Rashidjaved,
        Your post is very systematic and detail. Currently I have a problem with my petty cash record. I use the imprest fund method. On Last April there were cash advance booked under the petty cash due to emergency. this month there is advance clearance with some money restitution to the petty cash.
        how can I maintaining the balance?
        e.g float – 1,000
        April
        cash adv 100
        Petty cash 100
        Petty cash 100
        Bank 100
        June
        expenditures 90
        petty cash 10
        cash adv 100
        Expenditures 500
        petty cash 500
        Petty cash 500
        Bank 500
        I think there are problem in the last two journal, I have no idea what to put there or will it be something like:
        expenditures 500
        Petty cash-incoming 10
        Petty cash 490
        petty cash replenishment
        Petty cash 490
        Bank 490

        Reply
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    • Glad you found the material helpful. Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

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    • Glad you found the material helpful. Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

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    • Thanks! Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

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    • Glad you found the material helpful. Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

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    • Glad you found the material helpful. Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

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    • Thanks! Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

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