Unit-3 Cash Book And Bank Reconciliation

In this unit you will learn about the most important subsidiary book called Cash Book.

What are the advantages of maintaining a Petty Cash Book? Explain the method of balancing and posting the Petty Cash Book.

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Learning Pundits Content Team

Written on Apr 16, 2019 1:21:00 PM

In order to reduce the burden on the cashier, a separate book called 'Petty Cash Book' is maintained for recording all such small payments. A petty cashier is appointed for this purpose. He is paid a certain sum in advance. He keeps on making small payments out of this advance and records them in the Petty Cash Book. The amount of money given to petty cashier is called petty cash.

Imprest System

  • Generally, Petty Cash Book is maintained on imprest system. Under this system an estimate is made of the amount required for small payments for a certain period, say, a week or a month and this amount is paid to the petty cashier in advance. The petty cashier makes the small payments and records them in the Petty Cash Book. All such payments are supported by vouchers or receipts. At the end of the period , the petty cashier submits the account to the chief cashier.
  • The chief cashier examines the account and pays to the petty cashier the amount spent by him so that at the beginning of the next period again he has the same amount as he had in the beginning. This system of advance is called the 'imprest system’ and the amount given to the petty cashier as advance is known as the ‘imprest money'. For example, on April 1, Rs. 300 is given as advance to the petty cashier. He spends Rs. 260 during the month and submits the account along with the vouchers to the chief cashier. After verifying the account, the chief cashier pays him Rs. 260. Thus, on May 1, the petty cashier again has Rs. 300 with him. The amount to be given to the petty cashier i.e. imprest money, should be carefully determined. It should neither be too large nor too small, it should be sufficient to make small payments for the fixed period.

Recording and Posting the Petty Cash Book

  • The extreme left-hand column records the receipts of cash. But on the payment side a separate column is provided for each expense, such as postage, telegrams, stationery, cartage, wages, conveyance, etc. This facilitates the analysis of payments under different headings and also helps in posting to the concerned accounts. The number of columns depend upon the nature and size of the business.
  • The columns provided for different expenses generally are: (i) printing and stationery, (ii) postage and telegrams (iii) Cartage (iv) Conveyance (v) Entertainment (vi) Sundry expenses.
  • When the petty cashier receives money from the chief cashier, he records it in the particulars column of the Petty Cash Book by writing 'To Cash A/c' (if he receives cash) or 'To Bank A/c' (if he receives a cheque) and records the amount in receipts column. When payment is made, it is entered in the particulars column by writing the name of the expense incurred. The amount is first recorded in the 'total payments' column and then in the relevant column provided for it.
  • The Petty Cash Book is balanced periodically. The difference between the total receipts and total payments is the balance with the petty cashier. This balance is carried to the next period and the petty cashier is paid the amount actually spent by him. Thus, you will note that the procedure of balancing the Petty Cash Book is the same as you have adopted in the case of ordinary cash book.
  • A 'Petty Cash Account' is opened in the ledger. It is debited with the amount given to petty cashier. When Petty Cash Book is balanced, each expense account is individually debited with the periodic total as per the respective column by writing 'To Petty Cash A/c' and the 'Petty Cash Account' is credited with the total expenditure incurred during the period by writing 'By Sundries as per Petty Cash Book'. The Petty Cash Account is then balanced, It normally shows a debit balance which will be equal to the actual cash with the petty cashier.

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