Petty cash

Cash payments may be recorded as part of the main cash book which was described in the last section of this chapter. However, there may be a petty cash book as well. Petty cash is used for cash payments and among other things it groups entries for input into the nominal ledger. It may just record the petty cash payments but the imprest system is generally used. The word 'petty' means small or trivial, and the purpose of the petty cash system is to allow small and trivial disbursements to be made. This limitation may not always be apparent to colleagues who may try to obtain large sums of money from it. Nevertheless, the purpose is to handle small sums of money. .

A typical petty cash book is very wide, has two sides, and has a considerable number of columns for analysis. This makes it difficult to reproduce here but the following is a simplified example of how the payments side typically looks:

In practice there would of course be many more entries and a further dozen or so analysis columns to record the different categories of expense (milk, stationery, etc). The total column is always used and this is the total amount paid out on each voucher. If someone is claiming £10 for stamps and £10 for petrol, then £20 would be entered in the total column.

The example assumes that the imprest system is in use and that the float is £50.00. This operates by a specified sum of money, £50.00 or some such figure, being given to the petty cashier when the petty cash system is established. At the end of the week or month the total amount expended is reimbursed, so that the float is restored to the original sum. The imprest system is preferred by auditors and is much superior to other systems.

Under the imprest system the amount of money in the petty cash box, plus the payments made and recorded in the book, should add up to the amount of the float. If they do not, a mistake has been made. In the example a cheque for £38.48 would be written and cashed. This would restore the float to £50 and this would be the opening balance for June. The accounting entries to record the May transactions would be:

Postage account                     £20.00 debit

Petrol account                        £18.48 debit

Petty cash account                 £38.48 credit

The entry for the reimbursement cheque would be:

Petty cash account                  £38.48 debit

Bank account                          £38.48 credit  

After all the entries have been posted, the petty cash account should have a balance of £50 in debit in the nominal ledger. It is an asset account and there is £50 cash to support it. A £50 cheque would have been written on Day 1.