Using imprest, the petty cash of a company is kept at a constant rate. The most important part of a petty cash system is the documentation of each transaction. The advantages of the imprest system are as follows. Double column cash book or two column cash book consists of two columns of amount on each side to record cash and bank transactions. When creating a petty cash account, be sure to document the origin of the cash you use to start with, and also keep a petty cash book to track your every petty cash purchases.
What is petty cash and how to manage and record it. By this system a specified amount known as float is left with the petty cashier for petty expenses. The advantages of using the imprest system are versatility, accountability, practicality, limitation of theft, ease of use and limitation of expenditure. The main advantages of petty cash book publish your article. Avoid making the petty cash accessible to all employees, as this. Petty cash is a small amount of money for small expenses. It has been tried and tested and is an efficient method. Here are some advantages and disadvantages to using petty cash as an expense management solution. Petty cash book the cash book as seen above is used for recording all major payments. Many expenses of small nature recorded in petty cash book, the number of transactions is reduced in the cash. Companies use actual information for cash collections and payments to create a budget. As the petty cashier has to account for his expenses, before he can draw further sums, the petty cash book remains up to date. Petty cash is an easy to understand and familiar method of paying for company expenses.
In order to reduce the burden on the cashier, a separate book called petty cash book is maintained for recording all such small payments. The more documented petty cash expenses, the more your deductions, and the lower your. Advantages and disadvantages of analytical petty cash book. In large business concerns, the petty cash book is maintained in columnar or analytical form, with a separate column for each usual item of expense and a column for. The advantages of analytical petty cash book are given below.
What are the advantages of a imprest system for petty cash. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. As head cashier checks the accounts of previous month and gives advance for the. In a modern economy in which technology is a staple in corporate accounting, this journal resembles more an electronic repository. The main advantages of imprest system of petty cash are as follows. The imprest petty cash system is a method of accounting for petty cash expenses. What are the advantages of using the imprest system. Maintaining a petty cash book can be simple as long as a person makes sure to keep up on transactions regularly. Cash accounting can also be costeffective, especially if your business structure is a sole proprietorship or partnership.
Petty cash book system are also called as imprest system. The record of petty cash is checked by the cashier periodically, so that a mistake, if committed. Petty cashier is not allowed to keep idle cash with him if the float is found to be more. Petty cash is a small amount of cash that any business can keep on their premises in a lockable container. Petty cash book maintains records of all petty payments systematically.
Disadvantages of petty cash your business arizona republic. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers. Advantages and disadvantages of analytical petty cash book qs. Petty cash accounting procedures reconciliation uses. Time wastage minimization under this columnar imprest petty cash book petty expenses are not needed to be posted in the relevant ledger account again and again.
By keeping track of all petty cash transactions no matter how petty you have records to back up deductions for those small business expenses. A s the petty cashier has to produce to the chief cashier the petty cash book for inspection. Effectively managing the petty cash helps us control various expenses as well as compare miscellaneous expenses from period to period. Advantages of the imprest system of keeping petty cash the petty cash book is used to record small payments. The person who is maintaining petty cash book is called as a petty cashier. In most cases, the petty cash book is an actual ledger book, rather than a computer record. By keeping a check on the amount refunded to the petty cashier, it is. Petty cash book format example definition explanation. Thus, the book is part of a manual record keeping system.
Outgoing cash flows range from vendor and service provider remittances to salary and tax payments. As its name indicates, cash accounting is primarily concerned with one thing. A petty cash book, therefore, serves the purpose of a ledger, keeping track of all business payments made on a small scale. At the end of the period, let say, a month, an amount equal to the amount he has spent is given back to the cashier to restore his cash at hand to the original amount held. It saves labour to a considerable extent as it enables the monthly. Or is the book which used to record the small expenditure which incurred by the businessorganization for a certain period of time such as day to day, week to week or month petty cashier. Imprest system is the most popular way of keeping the petty cash book. The importance of bookkeeping accounting for small businesses. Petty cash book explanation, format, example, ordinary and imprest. In the days when we paid for all small business transactions in cash, it was necessary to be intentional about keeping track of. In the days when we paid for all small business transactions in cash, it was necessary to be intentional about keeping track of those transactions.
What are the advantages of maintaining a petty cash book. 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 these are expenses which are incurred day after day. What are the main advantages of maintaining cash book. The cash receipts and disbursements method is a budgeting process. It facilitates for posting petty transactions in the bank cash book and budget sheet.
Advantages to using petty cash petty cash is an easy to understand and familiar method of paying for company expenses. Cash and bank transactions can be recorded in cash book. It helps the senior accounts officer or chief cashier to concentrate on more important work by leaving the keeping of the petty cash to the petty cashier. Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively. Petty cash book 2019, imprest system of petty cash. 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 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. Petty cash book can be maintained either in a simple or in analytical way. It is a systems off petty cash book where a person petty cashier is given a fixed amount. When petty cash is easy to get to employees, it is a suitable way to pay for little purchases. Of petty cash is used by most of the companies because of the following advantages. Bookkeeping accounting will help you plan ahead for your business. Advantages of petty cash book it relieves the cash book of numerous entries for minor payments. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. At the end of the period a petty cash reconciliation is carried out.
Meaning of petty cash book and advantages of keeping petty. By watching this video you will understand how to record all the entries in the petty cash voucherreceipt book. One is that the cash is limited so the chances of losing money are limited. Thus we see that a cash book is the mixture of journal and ledger. Is the cash book which used to record small expensesexpenditure which take place from time to time within the business. This type helps in managing and accounting for petty cash.
It is an accessible, convenient way to pay for small purchases. Cash books are irreplaceable for the purpose of keeping track of all payments and receipts received within a business. Most cash should be deposited right away in the bank, but a small amount can be kept on hand in a petty cash account earmarked for minor. A cash book is a type of subsidiary book where cash or bank receipts and cash or bank payments made during a period are recorded in a chronological order. Receipts are recorded on the debit the left hand side, and payments are recorded on the credit right hand side. Petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well.
What are the advantages of the petty cash book answers. Petty cash funds are routine expenses that involve the insignificant amounts of money not eligible for credit card and cheque payments. It is possible to find out daily cash and bank balance. Understand how the imprest system works in the petty cash book. You need to develop a set of policies or procedures dictating the handling of cash in your business to avoid problems such as theft and misappropriation. As head cashier check the accounts of previous month and gives advance for the coming month, does, errors if any are reduced. Heres how you can set up an effective, easytomanage petty cash system. Is there a better way to solve the small expenditure dilemma. But, in every business a number of petty small payment like that for postage, carriage, stationery, entertainment, cartage, conveyance etc. Advantages of the petty cash book imprest system under this petty cash system method, the actual requirement of cash is realized effectively. Keeping large amounts of petty cash may also increase the likelihood of theft in your business. When cash transactions are recorded in the journal a lot of time and labour will be involved. The importance of a cash book in accounting bizfluent.
The petty cash fund is an accounting tool that helps you to manage and track small purchases that are not appropriate to make a check payment or using your credit card. Read this article to learn about the meaning and preparation of analytical and imprest system of petty cash book. Cash book also serves the purpose of book of original entry as well as ledger. Make sure you are taking advantage of all those petty cash transactions. Many expenses of small nature are recorded in petty cash book. Why petty cash is important for your business finances.
You may learn more about accounting basics from the following articles ledger account practical examples. It relieves the cash book and the chief cashier of the burden of recording tiny. Petty cash is a comprehensible and common method of paying for business operating cost. Advantages, disadvantages, and the pex alternative.
It helps the proprietor to know the cash and bank balance at any point of time. It saves the chief cashiers time since a junior handles these petty payments. Such payments include postage, reimbursement to employees for small purchases of office supplies and numerous similar items. A cash book is a document in which the cash transactions of corporate accountants and especially the auxiliary and junior accountants, are recorded. Notes on petty cash fund grade 10 accountancy petty cash. To avoid this all cash transactions are straight away recorded in the cash book which is in the form of a ledger 2.
Here we discuss the format of petty cash book, types of petty cash systems including the ordinary and imprest system along with its advantages and disadvantages. How to set up and manage petty cash, including setting up a petty cash box. These include the money that comes into the vaults of the companies from diverse of clients, bank savings accounts and supplier sources, through discount programs. As the petty cashier has to account for his expenses, before he can draw further sums. In some cases, a company can even use this process to create income statements and other reports for future use. The system is a form of managing petty cash in a business. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established during an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers. Learn more about petty cash expense management, and decide which system is right for your business. Petty cashier is not allowed to keep idle cash with him if the float is found to be more than adequate.
Petty cash should be properly controlled with a petty cash log and accurately entered into the bookkeeping system in exactly the same way you would maintain a bank account. There might be a petty cash drawer or box in each department for. Causes for difference between cash book balance and pass book balance. Imprest petty cash system also minimizes the probability of any error which can occur during. Marks the advantages of using the imprest system are. Petty cash book is maintained by the petty cashier. Is a person who received money in order to meet petty expenditures.
The importance and advantages of petty cash fund are as follows. The amount of petty cash also known as the petty cash fund varies by company or organization. Forecasting your business needs ahead and planning for purchases and other business. Petty cash book meaning, cash book vs petty cash book. The imprest system principles of accounts singapore. Need and importance of bank reconciliation statement. Documenting transactions is the way a business documents business expenses for tax purposes. At the end of a period totals of all heads of petty expenses are transferred to a relevant ledger account. Limits discretionary spending and preventing small purchases from snowballing into a significant annual expense. It reduces the need to issue checks thereby reducing the work of the head of accountsaccountant as it is usually managed by. Meaning of petty cash book, its importance and advantages.
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