Petty cash book is a type of cash book that is used to record minor regular expenditures such as

office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc.

These small expenditures are usually paid using coins and currency notes rather than checks. The

person responsible for spending petty cash and recording it in a petty cash book is known

as petty cashier.

The chief cashier (also known as head or main cashier) bears the heavy responsibility of

maintaining company’s general cash book in which receipts and payments amounting to

hundreds or even thousands of dollars are recorded by him every day.

He, therefore, usually delegates the responsibility for handling small day to day cash transactions

to a bookkeeper, receptionist or some other reliable staff member.

Like a general cash book, a petty cash book has a debit and a credit side. All receipts are

recorded on the debit side and all payments are recorded on the credit side of petty cash book by

the petty cashier.

Petty cash systems

The cash allocated for petty expenditures for a specific period is entered on the credit side of
general cash book and on the debit side of petty cash book.

The cash is given to the petty cashier either on ordinary system or imprest system which are
briefly explained below:

1. Ordinary system

Under ordinary system, a lump sum amount of cash is given to the petty cashier. When the whole
amount is spent, the petty cashier submits the details of petty expenditures recorded in the petty
cash book to the head or chief cashier for review.
2. Imprest system

Under imprest system, a fixed amount of money known as float is given to the petty cashier to

meet petty expenditures for an agreed period which usually consists of a week or month.

At the end of agreed period, the petty cashier submits the details of all expenditures incurred by

him to the chief cashier.

The total cash spent by the petty cashier during the period is reimbursed to him and the total cash

available to spend at the start of the next period becomes equal to the original sum (i.e., float). At

any time, the total of petty cash balance and all expenditures that have not been reimbursed to

the petty cashier is equal to the agreed float.

Advantages of imprest system:

The imprest system of petty cash is used by most of the companies because of the following
advantages:

 The imprest system reduces the chances of misuse of cash because the float can be
immediately reduced if it is found to be more than adequate for the agreed period.

 Under this system, the chief cashier periodically checks the record of petty cash. If an
error is committed by petty cashier, it can be detected and rectified soon.

 It saves the time of the firm’s chief cashier who is usually a busy person with heavy
responsibilities of handling large receipts and payments by cash and checks.

 The imprest system enables significant saving to be effected to post small items to
accounts in the ledger since it uses an analysis system that collects small items together
into weekly or monthly totals.

 This system trains young staff members in handling cash with responsibility.

 There are little to no chance of misappropriation of cash by the person in charge because
the imprested sum is usually very small.
 Format of petty cash book
A simple format of petty cash book is given below:

Example
The petty cashier of John and James Company paid cash for the following expenditures
during March 2018.

 March 01: Balance brought forward; petty cash $50.

 March 01: The amount of petty expenditures for previous moth reimbursed by chief
cashier $200.
 March 05: Bought some liquid material for cleaning purpose $25.
 March 10: Paid $20 for van wash.
 March 13: Bought pens and pencils $15.
 March 17: Paid for fuel $35.
 March 20: Paid $55 for casual labor.
 March 22: Donated $10 to SBA – a charitable institution.
 March 30: Bought a broom for office $5

Required: Record the above transactions in a petty cash book assuming a petty cash
imprest system is used by the John and James company.
Solution