In a business besides large payments, a number of small payments, such as for conveyance, stationary, cartage, etc have to be made. If all these payments are recorded in the Cash Book, it will become unwidely. Also, the main cashier will be overburdened with work. Therefore, it is usual for firms to appoint a person as ‘Petty Cashier’ and to entrust the task of making small payments , say below Rs.250, to him. Of course, he is reimbursed for the payments made. The respective accounts are debited.
Petty Cash Book is the book which is used for the purpose of recording petty cash expenses. It is prepared by petty cashier. It acts as the Petty Cash Account in which details of the receipts and payments of petty cash are entered.
Recording of Petty Cash: Petty cash given to the Petty Cashier for small payments is recorded on the credit side of the Cash Book as ‘By Petty Cash A/c’ and is posted to the debit side of the petty cash account in the Ledger.
Petty Cash Book may be maintained by ordinary system or by imprest system.
In case of Ordinary System of Petty Cash, petty cashier is given a certain amount to cash and after spending the whole of that amount, he submits the account to the Head Cashier
Imprest System of Petty Cash Book
It is convenient to entrust a definite sum of money to the petty cashier at the beginning of a period and to reimburse him for the payments made at the end of the period. Thus, he will again have the fixed amount at the beginning of the new period. Such a system is known as the ‘Imprest System of Petty Cash’.
Advantages of Imprest System of Petty Cash
1. Control Over Mistakes: The Petty Cash Book is checked by the cashier at regular intervals so that a mistake, if committed, is soon rectified.
2. Control Over Petty Expenses: Petty expenses are kept within the limits of imprest since the petty cashier can never spend more than the available petty cash.
3. Control Over Fraud: Under this system defalcation of cash can be minimized since the Petty Cashier is not allowed to draw cash as and when he desires.
Advantages of Petty Cash Book
The advantages of maintaining a Petty Cash Book are:
1. Time Saving: Saves the chief cashier’s time.
2. Labour Saving: Saving of labour in writing up the Cash Book and posting into the Ledger.
3. Control: It provides control over small payments.
4. Convenience in Preparing Ledger Accounts: The totals are only taken to post them into the Ledger. No unnecessary details are to be given. Hence, it is convenient to post these directly into the ledger.