Besides maintaining a main or general cash book, many companies also maintain a small cash book known as petty cash book to record small day to day expenditures of the business.
Petty Cash Book is an accounting book used for recording expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc.
The difference between the total of the debit items and total of credit items represents the balance of the petty cash in hand.
The person who is responsible for makings small payment and recording them is called “Petty Cashier”.
IMPORTANCE OF PETTY CASH BOOK :-
A Petty cash book is maintained because of the following reasons –
- It records all the petty expenses incurred in the organization
- It helps in separating large expenses from small expenses.
- It enables division of work. The main cash and main cashier is not burdened with petty small entries.
- Recording in this book is very simple & convenient, since entries are recorded under separate heads, which makes posting quicker.
SYSTEMS OF PETTY CASH
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:
- ORDINARY SYSTEM :- Under this system, the petty cashier is given a lump-sum amount for meeting petty expenses. When the whole amount of petty cash is spent, the petty cashier submits the account to chief cashier who again pays a lump-sum amount to petty cashier.
- IMPREST SYSTEM OF PETTY CASH :- In this system, the petty cashier is given a fixed amount of money at the beginning of the accounting period. This period could be a week, a month or even sometimes a day. This money given in advance is known as a float.
Then at the end of the period, he will tally his expenses. He will be reimbursed for the exact amount of the total expenses. This will bring his cash in hand to the original figure.
TYPES OF PETTY CASH BOOK
- SIMPLE PETTY CASH BOOK – Simple Petty Cash Book is just like the main cash book. Cash received by the petty cashier is recorded on debit side and all payments for petty expenses are recorded on credit side in one column.
- ANALYTICAL PETTY CASH BOOK – In the analytical system, a separate column is used for each commonly occurring item of expenditure such as stamps, postage & handling,stationery, wages etc.
Thus, in simple words a petty cash book is created to facilitate small payments in a business or organization and is entrusted in the hands of a petty cashier.