Comprehending the notion of a petty cash book meaning is important in business, especially in meeting the needs of recurrent minor expenses in a more orderly manner. A petty cash book in accountancy refers to an auxiliary book recording the transactions of minor cash, such as postage, light refreshments for workers, and transport fare, incurred regularly. This book serves the purpose of preventing the unnecessary mess of incorporating small expenditures in the main cash book. It is run by a petty cashier and is useful in coordinating financial activities by bringing together all minor expenses made, ensuring that there is order, accountability, and financial discipline.
What is a Petty Cash Book?
A petty cash book is a type of total account tracking small everyday expenses that are too many or too small to be recorded in the main cashbook. Usually, these payments are administered by a petty cashier who is given a certain amount of cash to take care of these petty expenses for some time. The petty cash book makes sure that such transactions are recorded and checked periodically.
Key Characteristics of a Petty Cash Book
- Categorises Small Transactions: It concentrates only on small disbursements and does not utilize the primary cashbook for significant transactions.
- Petty Cashier Function: One individual is assigned the task of managing the petty cash fund, for which all vouchers will be prepared.
- Replenishment in Intervals: This is the practice that operates within the imprest system where the period defined elapses, and the amount spent is used to replenish the fund.
- Enhances Clarity: All the transactions are supported by receipts, which makes the procedure clear and open to audit.
- Minimizes Errors: The use of petty cash books for small payments only minimizes the chances of errors occurring in the primary accounting records.
Types of Petty Cash Book
Generally, there are two types of Petty Cash Book, Businesses can choose between a Columnar petty cash book and an Imprest petty cash book, each serving different needs.
Columnar Petty Cash Book
An analytical petty cash book or popularly columnar petty cash book is more effective as it records expenses incurred for different purposes each in a different column. The approach above helps in tracking the expenditure trends easily thus assisting different organizations in managing their costs and budgets appropriately.
Key Features of Columnar Petty Cash Book
- Expense Classification: Typical classifications are postage, transportation, maintenance, meals and competitions, and sundries.
- Enhanced Budget Management: The classification of transactions helps in simplified monitoring of the expenditure patterns and corrective actions taken by Management.
- Association for Reporting Purposes: Because every overhead cost is accounted for in its respective group, it facilitates the conducting of overhead cost analysis and the comparison of budgets.
Columnar Petty Cash Book Format
| Date | Particulars | Postage (₹) | Stationery (₹) | Travel (₹) | Total (₹) |
The columnar petty cash book provides more comprehensive details regarding spending patterns and facilitates proper maintenance of numerous minor expenditures in an orderly fashion by businesses. Larger organizations with intricate financial systems tend to use this approach more often.
Imprest Petty Cash Book
Operates petty cash book on the imprest system in which at the beginning of a period, a fixed sum of money is set aside for the petty cashier. This money is used by the cashier for making minor purchases, and at the end of the period, the petty cashier is reimbursed on the basis of the amount he spent. This maintains the stability of petty cash over some time.
How the Imprest System Works
- Initial Allocation: A predetermined amount of money (for example, ₹5,000) is provided at the beginning of the period to the petty cashier.
- Tracking Expenses: Each payment is made with a voucher and is posted in the petty cash book.
- Periodic Replenishment: At the end of the period, they refill the fund by the exact amount which has been spent from the cash in hand.
- Monitoring Usage: The management looks into the petty cash book and checks if the expenses made are in line with what is budgeted and whether they are appropriate.
Format of Imprest Petty Cash Book
| Date | Particulars | Voucher No. | Amount (Cash In) | Amount (Cash Out) | Balance |
Advantages of Petty Cash Book
By keeping a petty cash book, an organization enjoys several advantages, which allow for the recording and tracking of even the smallest of crucial expenses.
- Effective Handling of Cash: Smaller payments are kept away from the main cash book avoiding any disorder in the primary ledger.
- Enhanced Responsibility: Appointing a petty cashier makes it easy to assign and delimit the management of petty cash.
- Economizing Time: Collecting a few expenses into the petty cash book saves time by lightening the load carried by the finance section.
- Control Over Expenses: Managers can monitor spending patterns through the use of a tabular presentation of the petty cash book to control spending.
- Easy to Audit: Because there are records and slips to support the expenses, the petty cash fund can be accounted for and its audit completed effectively.
Example of Petty Cash Book in Use
A retail establishment employs a petty cash book to record small expenses incurred for items like packaging materials, transport fares, or refreshments offered to employees. Every week, the petty cashier presents the book with accompanying receipts for replenishment of funds by the finance team. This aids in the uninterrupted running of operations without affecting the main cash flow and also enhances financial control.
Conclusion
To summarize, the petty cash book in accounting designates a supplementary accounting record that is maintained for small day-to-day transactions. It assists organizations in controlling petty expenses effortlessly without too much burden on the primary cash book while enhancing integrity and responsibility. The columnar petty cash book has different sections for different categories while the imprest system takes care of cash management while allowing easy refilling of cash. In this regard, given the many merits it has, the petty cash book is an indispensable tool in cash handling for small and even huge businesses.
Petty Cash Book FAQs
What is their explanation behind maintaining a petty cash book?
Petty Cash Book is a record of cash payments meant mainly for helping easy cash management by recording expenditures like travel expenses, office materials, and nuts and bolts out of the main cash register.
How Does the Imprest system mechanism work in petty cash management?
The imprest system consists of providing a petty cashier with a specific sum of money for a definite period. The petty cash fund is then topped up by the amount equivalent to the expenses incurred, so the expenditure of one level of petty cash is controlled.
Mention the different types of petty cash books in use.
The two commonly found types are the columnar petty cash book which is used to classify expenditures and the imprest petty cash book which is based on a fixed fund model.
Why would one need a petty cash book?
A petty cash book is a valuable tool for any business dealing with frequent small payments as it helps control such payments, promotes responsibility, and makes it easier to do account balancing.
Where can one get some templates/information concerned with petty cash?
Non-formatted and how to calculate petty cash book meaning in accounting PDF files can be obtained for free while explanations about the templates can be found in some accounting books.
