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ZICA T1 - Financial Accounting

ZICA T1 - Financial Accounting

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Published by Mongu Rice
The ZICA Technician Manual for Financial Accounting
The ZICA Technician Manual for Financial Accounting

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Published by: Mongu Rice on Jul 20, 2010
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THE ANALYTICAL PETTY CASH BOOK

INTRODUCTION

Chapter 7 covered the three-column cashbook. The cashbook comprises a cash account, a bank
account and a cash discount column. This chapter covers the other type of cashbook called the
petty cash book. In this chapter we will discuss the purpose of the petty cash book, the way
entries are made and posted to ledger and the source documents used in preparation of the book.
We will also explain the operation of the imprest system and how it may differ with the
operation of the three-column cash book.

TOPICS

1)What is petty cash book
2)The purpose of petty cash book
3)What is to be paid out of petty cash
4)Personal security and control of petty cash
5)The petty cash voucher
6)The imprest system
7)Recording in petty cash book including Value Added Tax (VAT)
8)Balancing the petty cash book
9)Posting petty cash book to the ledger (double entry)

LEARNING OUTCOMES

After you have studied this chapter, you should be able to:

-Describe the petty cash book and its intended purpose.
-Identify what should be paid out of petty cash.
-Prepare a petty cash voucher as a source document for entries in the petty cash book.
-Make appropriately entries in petty cash book, balance off at the end and post to the

ledger.
-Restore imprest in order to start a new period.

1. DEFINITION OF ANALYTICAL PETTY CASH BOOK

1.1Analytical means the petty cash book is separated into columns for different categories of
expenses, for example,different columns for expenses relating to postage, stationery,
cleaning, and motor expenses.

1.2Petty means small items of expenditure the business may incur in the course of its daily
operations.

73

Therefore, the analytical petty cash book could be defined as:

A book used by a business to record payments of small amounts in cash. The use of
cheques for such payments is considered to be uneconomical.

2.

THE PURPOSE OF PETTY CASH

2.1

It is a common feature that almost in every business, there will be a number of small
expenses that have to be paid for cash, instead of other methods. To make these
payments, which could be on daily bases, a certain amount of cash has to be kept within
the business offices.

3.

WHAT ARE PETTY CASH ITEMS?

3.1

These are payments for small expenses required in cash. It is important at this stage to be
mindful that what is a petty item will depend on nature and size of an organization, for
example, a giant mining company buying an office stapler would be petty item, but a
small school with may be 6 students a stapler would be a material item.

3.2

Different business institutions have different rules about what is to be paid out of petty
cash. Because of its nature, cash is highly open to abuse and requires responsible officers
to handle it. Management of the organization should specify who could receive money
out of petty cash.

3.3

The list of petty cash items should remain flexible for adjustment to include other small
items that may arise in due course.

3.4

If a list of petty items is not available, like in some businesses, the responsible officer in
charge of petty cash may rely on judgment, in consultation with the supervisor.

3.5

Petty cash items may include the following:

oTravel expenses for employees and refunds of the same
oOther expenses such as printing, stationery, milk, tea, stamps
oFuel expenses
oCleaning, just to mention a few

4.

PERSONNEL, SECURITY AND CONTROL OF PETTY CASH

4.1

PERSONNEL
Cash by nature is highly open to misappropriation. It is for his reason that whatever
amount is involved, it must be entrusted in the hands of a responsible officer. For petty
cash this responsibility is given to a petty cashier. In the absence of petty cashier a
deputy can takeover the responsibility.

4.2

SECURITY

It is the responsibility of the petty cashier to ensure that:

(a)Petty cash is held in a safe place. It must be well secured in a lockable box (petty
cash box) with keys to it kept by the petty cashier. No one should be allowed access
to petty cash box apart from the petty cashier and any other authorized officer.
(b)He or she should be the only one to make actual payments of petty cash.

74

(c)All payments are fully and properly authorized and are being made for valid reasons
and intended purpose.

4.3

CONTROL

Petty cash should be used only for small items of expenditure and not for large expenses,
such as office furniture or airfares. Paying large amounts from petty cash would be an
obvious target for theft.

(a)To avoid such, it is important to monitor and control petty cash spending by ensuring
that all payments are properly authorized.

(b)There must be in place also a limit to petty cash payments. For example management
may decide that all petty cash payments should be limited to
K100 000 amounts more than the limit should be paid by other means, for
example by cheques.

(c ) Authorization for payments out of petty cash can be done by either the petty
cashier or Supervisor. The petty cashier could be allowed to authorize cash
payments up to a certain. Amount within the limit, say K40, 000 within the
K100, 000 limit. Amounts above that up to K100, 000 could be authorized
by supervisor or appointed person.

5.

PETTY CASH EXPENDITURE (PETTY CASH VOUCHER)

5.1 The initial payment of record of payment is the petty cash voucher. The petty
cash voucher is prepared by the petty cashier whenever a payment is requested.
Petty cash vouchers are serially–numbered slips in a padded booklet. The booklets
are obtainable from stationery suppliers. The following details are found on the petty
cash voucher:

oDescription or details of payment i.e. item of expenditure, for example, 4 realms
A4 paper.
oThe amount i.e. amount required for the item to be bought
oName and signature of the one preparing the petty cash voucher (usually petty

cashier).

oName and signature of the person authorizing payment (usually petty cashier or
supervisor depending on amount).
oName and signature of the person to receive cash.
oThe date when payment is made
oThe voucher number

75

Example of petty cash voucher.

NO…………

……

PETTY CASH VOUCHER

DATE……………..

DESCRIPTION/DETAILS

AMOUNT

PREPARED BY:
AUTHORISED BY:
RECEIVED BY:

5.2

RECEIPTS

A receipt is a document prepared by a person receiving money acknowledging that
money has been received for goods or services supplied.

A person buying items using petty cash must obtain a receipt from the supplier. The
receipt should be given to the petty cashier as evidence of purchases. The petty cashier
will then attach the receipt to the petty cash voucher as supporting document for
payment. The petty cashier can then record in the book that payment has been made.

5.3

RECEIPTS NOT AVAILABLE.

There could be certain requested payments, which cannot be backed up by a receipt, for
example, Taxi fares, bus fares. In these cases payment should be sanctioned by a
supervisor and properly authorized.

5.4

VALUE ADDED TAX RECEIPTS

76

If there’s an amount for Value Added Tax in a payment, and the tax can be claimed from
Zambia Revenue Authority (ZRA), the receipt must show the following details:

oTotal amount paid
oThe tax paid
oThe suppliers name, address and Value Added Tax registration number.
oThe date of the transaction.

6.

THE IMPREST SYSTEM

6.1

The imprest system is where a petty cashier is reimbursed what has been spent in order to
restore the petty cash float.

6.2

Float is the sum of money the petty cashier must start with at the beginning of every
month. It’s decided by management and is usually fixed but can be adjusted to suit
current requirement.

Example of imprest system

The imprest amount (float) is K600, 000. During a particular month a total of
K450 000 was paid out of petty cash.
In the above situation, the petty cashier is remaining with K150, 000 in cash box,
therefore, in order to restore the imprest amount, the petty cashier will need
reimbursement or top up of K450 000 to restore the imprest amount.

Imprest amount

K600, 000

Cash payments

K450, 000

Balance

K150, 000

Imprest system

Reimbursement

K450, 000

Imprest amount

K600, 000

IOUs AND PETTY CASH. (I OWE YOU)

7.1 Some organizations allow individuals to borrow money from petty cash, just for a short
period of time, say a day or two.

In such cases the petty cashier must prepare an IOU slip, which shows
oAmount borrowed
oName and signature of borrower
oThe date the amount is borrowed.

7.2

Example of IOU.

I OWE PETTY CASH K20, 000

MARY BANDA
20/02/07

77

IOU is a good as cash, and the document should be placed in cash box and be treated as
cash. When counting cash in cash box IOU must be added as cash equivalent.

Example cash and IOU.

The monthly petty cash float is K500, 000. During the month total expenditure amounted
to K285, 000 and an individual borrowed out of petty cash K35, 000.

At the time of balancing the petty cash book, the individual had not paid back the
K35, 000. How much cash is available at that time?

The following format will help you calculate the cash balance remaining.

Physical cash available

xx

Plus IOU

xx

Plus total expenditure

xx

Equals imprest amount

xx

For the above example, the solution is;

Imprest amount (float)

500,000

Less expenditure

(285,000)

Physical cash available

215,000

Plus IOU

35,000

Petty cash balance

250,000

7.3

When the borrowed money is paid back, the petty cashier will put back the money in cash
box and remove IOU slip, which is torn as if nothing happened.

IOU should not be encouraged but if it happens, measures should be put in place to
control it. Employees who do not pay back are identified and amounts recovered from
their monthly salary through payroll.

8.

RECORDING THE ANALYTICAL PETTY CASH BOOK

8.1

All payments before being recorded in petty cash book must be supported with petty cash
vouchers and receipts. It is highly recommended that the petty cash book be updated
(recorded) on daily basis in order to have accurate information on petty cash expenditure.

Balancing the petty cash book will depend on the volume of transactions for petty
expenditure. In busy organizations it can be every two weeks others on monthly basis.

Division of the petty cash book.

The petty cash book is divided into two parts, left and right hand sides.
oThe left hand is the debit side. This side is used to record any cash received by
petty cashier.
oThe right hand side is the credit side. This is where expenses in the period are
analysed.

78

oThe analysis columns in petty cash book will vary depending on the
organization’s pattern and nature of expenditure.

Example: Analytical petty cash book.

RECEIPTS (DR)

PAYMENTS (CR)

Total
DR

DateDetailsVoucher
No.

Total
CR

Office
ExpensePostageCleaningTravelin
g

Motor
expenseLedger

8.2

Example : Preparing the petty cash book

Lakefield Ltd make use of a petty cash book as part of their bookkeeping system. The
following is a summary of the petty cash transactions for the month of time
20 X7.

June 1.Opening petty cash float received from

K

Cashier……………………………………………

700,000

2.Cleaning material………………………………….

30,000

3.Postage stamps……………………………………

25,000

4.Envelopes…………………………………………

10,000

June 8. Taxi fare……………………………………………

65,000

10 Petrol for company car…………………….

100,000

14 Typing paper………………………………………

80,000

15 Cleaning material…………………………………

29,000

16 Bus fare……………………………………………

10,000

20 visitors lunches…………………………………..

45,000

21 Mops and bushes for cleaning…………………….

56,000

23 Postage stamps………………………………….

15,000

27 Envelops…………………………………………

7,000

29 Visitors lunch…………………………………….

60,000

30 Photo copying paper………………………………

95,000

You are required to draw up a petty cash book for the month using analysis columns for
stationery cleaning, entertainment, traveling and postage.

Show clearly the receipt of the amount necessary to restore the float and the balance
brought forward for the start of the following month.

79

SOLUTION

The Analytical Petty Cash Book

DR (K) CR(K)

N.B

When petty cash is established and restored every month double entry is:

Dr-petty cash
Cr- Bank A/C (when money is withdrawn from bank in the above example:

Dr Bank A/C (Cash Book) Cr

June 1 Petty cash

700,000

June 30 petty cash

627,000

For expenses the petty cash book is used as on accumulative book for small expenses,
where each expense account is updated on monthly basis after they have accumulated.
As in example the double entry would be;

Receipts

Date

Details

V/nTotal

Stat

CleaningEntertt

Travel

Postage

700,000Jun 1

Cash

Jun 2

C/Mat

1

30,000

30,000

Jun 3 Stamps

2

25,000

25,000

Jun 6

Envelops

3

10,000

10,000

Jun 8

T/Fares

4

65,000

65,000

Jun 10Petrol

5

100,000

100,000

Jun 14T/Paper

6

80,000

80,000

Jun 15C/Mat

7

29,000

29,000

Jun 16B/Fares

8

10,000

10,000

Jun 20V/Lunch

9

45,000

45,000

Jun21

Mops/Brushes

10

56,000

56,000

Jun 23Stamps

11

15,000

15,000

Jun 27Envelops

12

7,000

7,000

Jun 29V/Lunch

13

60,000

60,000

Jun 30P/Paper

14

95,000

95,000

627,000

192,000

115,000105,000

175,000

40,000

627,000Jun 30Cash

Bal c/d

700,000

1,327,000

1,327,000

700,000Jul 1

Bal b/d

80

Dr

Stationery A/C

Cr

June 30 Petty cash 192,000

Dr

Cleaning A/C

Cr

K

K

June 30 Petty cash 115,000

Dr

Entertainment A/C

Cr

K

K

June 30 Petty cash 105,000

Dr

Traveling A/C

Cr

K

K

June 30 Petty cash 175,000

Dr

Postage A/C

Cr

K

K

June 30 Petty cash

40,000

N.B

When balancing the petty cash book, balance c/d and b/d is the actual imprest amount (or
float). The amount remaining with the petty cashier is not shown as part of balance. It
therefore means that, before balancing the petty cash book the cash spent should first be
reimbursed to the cashier, then put in petty cash box with the amount that remained. This
is restoring the imprest amount, which is the balance.

8.3

Petty cash payments with Value Added Tax.

If a petty cash transactions (i.e. receipts and payment) involves Value Added Tax,
Value Added Tax should be accounted for separately as long ass there’s evidence of
Value Added Tax (i.e. Value Added Tax receipt).

Example: Value Added Tax receipt and petty cash record.

RECEIPTT S/No. (04)

Date: 01.06.05

Amount
K
4 Reams A4 90,000
Paper

RECEIPT S/No. (05)

Date: 02.06.05

Amount
K

Repairs to computer
145,000

81

Value Added Tax 17.5%
15.75
Total 105.75

Add 17.5%
Value Added Tax
25,375

170,375

The two Value Added Tax receipts will be recorded as follows in the petty cash book

PAYMENTS SIDE

Date

Details

V. No.

Total

StationeryRepairs

Value
Added
Tax

02.06.05

02.06.05

4 Ream of
paper
Repairs

04

05

105.75

170.375

90,00

145,000

15.75

25,375

9. CHAPTER SUMMARY

You should have now learned that:

oPetty cash is used to make small payments.
oPetty cash must be kept safely in a lockable cash box.
oBecause of its nature, for security reasons petty cash should be in the hands of a
responsible officer and that not every body in an organization is eligible for petty
cash.

oPetty cash is operated on an imprest system. This is where the petty cashier is
reimbursed what has been spent in order to restore the imprest amount.

Thus: FLOAT

xx

Less expenditure

xx

Balance

xx

Reimbursement

xx

FLOAT

xx

oAll payments out of petty cash must be fully authorized by signing on the
voucher.
oIf there’s no receipt (document) to support the claim, the petty cashier must
consult the supervisor.
oEntries made (recorded) in petty cash book originate from a document called
petty cash voucher.
oThe petty cash book is used as an accumulative book for small expenses of
which the totals for the period are transferred to respective expense account in
general ledger.

82

oPetty cash expenditure involving Value Added Tax, should be recorded
separately in petty cash book with separate amounts in the Value Added Tax
column.

EXERCISES

1.What is the purpose of the petty cash book?
2.Who is responsible for maintaining cashbook?
3.What is the imprest amount (petty cash float)?
4.The petty cash book is maintained on a system called imprest system. What is imprest

system?
5.What is the source document for entries in petty cash book?
6.What is the division of the petty cash book?

7.

The following petty cash transactions were recorded during the month of December
20x6.

1.

Petty cash float was K400, 000 was obtained by withdrawal
of cash from the Bank.

2.

Paid for stationary…………………………………10,800

4.

Paid for sundry expenses………………………….21,700

6.

Cash sales…………………………………………30,000

9.

Repairs to vehicles………………………………..42,500

10.

Cash received from staff telephone calls…………

18,000

12.

Paid for stationery………………………………..90,000

14.

Paid for sundry expenses…………………………

28,200

19.

Cash sales………………………………………….33,000

25.

Paid for stationary…………………………………47,800

All expenses and income listed above are inclusive of Value Added Tax at 17.5%.

Required:

Record all the transactions in petty cash book and balance off as at 31 December 20x6 and
restore the imprest amount.

83

SOLUTIONS TO EXERCISES

1. The purpose of petty cash book is to record small items of expenditure
2. The petty cashier.
3. This is a fixed amount a petty cashier requires at the beginning of every period.
4. This is a system where the petty cashier is reimbursed what has been spent in order to
restore the imprest amount.
5. The petty cash voucher with actual receipt of amount spent.
6. The petty cash book is divided into two sides.

Left side and right side
Left side to record receipts
Right side to record payments.

7 PETTY CASH BOOK

DR(K) CR(K)

Net Recpt

SalesTax

Total

Date

Details

V/N

Total

Station

Repairs

S/Exps

Value Added
Tax

400,000Dec 1

Cash

Dec 2

Station

1

10,800

9,191.50

1,608.50

Dec 4

S/Exps

2

21,700

18,468.09

3,231.91

25,531.92

4,468.08

30,000Dec 6

C/Sales

Dec 9

Repairs

3

42,500

36,170.21

6,329.79

15,319.15

2,680.85

18,000Dec 10Recpt/Phone
Dec 12Station

4

90,000

76,595.7
5

13,404.25

Dec 14S/Exps

5

28,200

24,000.00

4,200.00

28,085.11

4,914.89

33,000Dec 19C/Sales
Dec 25Station

6

47,800

40,680.8
5

7119.15

241,000

126,468.

136,170.2142,468.09

35,893.60

160,000Dec 31Cash
Dec 31Bal c/d

400,000

68,936.1812,063.82641,000

641,000

400,000Jan 1

Bal b/d

84

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