Advantages of maintaining a Petty Cash Book:

In every business there will be numerous small payments in cash such as payments for postage, telegrams, stationery, cartage, conveyance, entertaining the customers, minor repairs, etc. If all these petty payments are recorded in the cash book along with other payments, the cash book will be overloaded. Hence, a separate book called 'Petty Cash Book' is maintained for recording all such small (petty) payments. A person called petty cashier is entrusted with the work of making the small payments and maintaining the Petty Cash Book. The sum of money given to the petty cashier for making small payments is called petty cash.  

Generally, Petty Cash Book is maintained on Imprest System. Under this system an estimate is made of the amount required for petty payments for a certain period, say a week or a month. This amount is handed over to the petty cashier in advance. The petty cashier is required to obtain vouchers for all expenses he incurs. At the end of the period, the petty cashier presents the Petty Cash Book together with the vouchers to the chief cashier. The chief cashier verifies the entries in the Petty Cash Book and pays to the petty cashier a sum equal to the amount spent by him. The original amount of the petty cash with which the petty cashier had started is thus restored. This system of advance at the beginning and reimbursing the amount spent from time to time is called 'Imprest System'.

Recording, Posting and Balancing the Petty Cash Book:

One column each for receipts, cash book folio, date, particulars, and voucher no. But, it provides a number of amount columns for recording the payments of various petty expenses. This facilitates the analysis of payments under different heads and their posting to appropriate expense account. The headings under which petty expenses are generally categorized are:

i.Printing and stationery,

ii.Postage and telegrams,

iii.Cartage,

iv.Conveyance,

v.Entertainment

vi.Miscellaneous  

When the head cashier advances money to the petty cashier, either in cash or by cheque, an entry is made in the cash or bank column of the main cash book on the credit side by writing 'By Petty Cash Nc'. The petty cashier, on receiving the cash, records it in the particulars column of the Petty Cash Book by writing 'To Cash A/c' (if cash is received) or 'To Bank A/c' (if cheque is received) and enters the amount in receipts column. When he makes payments, each payment is entered in the particulars column by writing the name of expense incurred. The amount is first entered in the total payments column and then in the column specified for the concerned expense. The Petty Cash Book is balanced periodically, say weekly or monthly. The various expense accounts in the ledger are individually debited with the periodic totals (as per Petty Cash Book) by writing 'To Petty Cash A/c'. The Petty Cash Account in the ledger is credited with the total expenditure incurred during the period by writing 'By Sundries as per Petty Cash Book’.