The Petty Cash Book is a specialized book of prime entry used to record small, day-to-day expenditures that are too minor to warrant separate ledger entries. These transactions typically include expenses like office supplies, postage, transportation, and other minor operational costs. The petty cash book helps businesses manage these small transactions efficiently without cluttering the main cash book.
1. What Is a Petty Cash Book?
A Petty Cash Book is a subsidiary ledger that records all minor cash payments made from a petty cash fund. This fund is maintained under an imprest system, where a fixed amount of cash is allocated for small expenses, and the fund is periodically replenished to its original balance.
Key Features of the Petty Cash Book:
- Tracks Small Expenses: Used for recording low-value, routine expenditures.
- Imprest System: Operates under a system where a fixed amount is maintained, and expenses are replenished periodically.
- Categorized Columns: Expenses are recorded under specific headings like postage, stationery, and travel.
- Reduces Main Cash Book Entries: Prevents the main cash book from being overloaded with minor transactions.
2. The Imprest System of Petty Cash
The imprest system is the most common method for managing petty cash. Under this system, a fixed amount of cash (the imprest amount) is allocated for petty expenses. At the end of a specific period (e.g., weekly or monthly), the petty cashier submits receipts for all expenses, and the fund is replenished back to its original amount.
Example of the Imprest System:
- Initial Petty Cash Fund: $500
- Expenses During the Month: $350
- Replenishment Amount: $350 (to restore the fund to $500)
3. Format of the Petty Cash Book
The petty cash book typically has multiple columns to categorize various types of expenses. The left side records cash received (receipts), while the right side records cash payments under different expense headings.
Example of a Petty Cash Book Format:
| Date | Details | Voucher No. | Total (Dr.) | Postage | Stationery | Travel | Miscellaneous | Balance |
|---|
4. Example of Petty Cash Book Entries
Scenario:
XYZ Company maintains a petty cash fund of $500. During the first week of January, the following petty cash transactions occur:
- Jan 2: Purchased office stationery for $50.
- Jan 3: Paid $30 for postage.
- Jan 5: Paid $20 for employee travel expenses.
- Jan 6: Bought miscellaneous office supplies for $25.
Petty Cash Book for January 1–6:
| Date | Details | Voucher No. | Total (Dr.) | Postage | Stationery | Travel | Miscellaneous | Balance |
|---|---|---|---|---|---|---|---|---|
| Jan 1 | Opening Balance | – | $500 | |||||
| Jan 2 | Office Stationery | 001 | $50 | $50 | $450 | |||
| Jan 3 | Postage Expenses | 002 | $30 | $30 | $420 | |||
| Jan 5 | Employee Travel | 003 | $20 | $20 | $400 | |||
| Jan 6 | Miscellaneous Office Supplies | 004 | $25 | $25 | $375 |
5. Replenishing the Petty Cash Fund
At the end of the period (e.g., weekly or monthly), the petty cashier submits all vouchers and receipts, and the petty cash fund is replenished to its original amount.
Replenishment Example:
- Total Expenses: $50 + $30 + $20 + $25 = $125
- Replenishment Amount: $125 (to restore the fund back to $500)
Journal Entry for Replenishment:
Debit: Postage $30
Debit: Stationery $50
Debit: Travel Expenses $20
Debit: Miscellaneous Expenses $25
Credit: Cash/Bank $125
6. Importance of the Petty Cash Book
- Simplifies Record-Keeping: Keeps small transactions separate from the main cash book, making accounting more organized.
- Tracks Minor Expenses: Provides detailed tracking of small expenditures, ensuring accountability.
- Prevents Cash Mismanagement: The imprest system limits the amount of cash available, reducing the risk of misuse.
- Facilitates Reimbursement: Simplifies the process of reimbursing petty cash expenditures by maintaining clear records.
7. Conclusion: The Role of the Petty Cash Book in Accounting
The Petty Cash Book plays a vital role in managing small, routine expenses in a business. By operating under the imprest system, it ensures that petty cash is handled efficiently and accounted for accurately. The petty cash book helps businesses maintain organized financial records, control minor expenditures, and streamline the reimbursement process, all of which contribute to effective financial management.