Petty Cash Book: Types, How to maintain Petty Cash Book

A petty cash book records all small payments made through a petty cash fund systematically. This is maintained by the petty cashier and can be maintained either in a simple or analytical way. So That businesses perform a large number of petty transactions usually on a daily basis so they maintain a separate petty cash book.

There are two types of Petty Cash Books: the Columnar Petty Cash Book and the Imprest Petty Cash Book. Columnar Petty Cash Book contains many money columns to record day-to-day expenditures and has two sides – the debit side and the credit side. So we can say that imprest Petty Cash Book is a recordation of petty cash expenditures, sorted by date.

Types of Petty Cash Book

As mentioned earlier, petty cash book is of two types: Columnar Petty Cash Book and Imprest Petty Cash Book.

Columnar Petty Cash Book

Columnar Petty Cash Book is a type of bookkeeping system that is used to keep track of petty cash transactions. This type of book has multiple columns to record different types of expenses. So columnar Petty Cash Book is used when there are multiple people who need to access the petty cash. 

This book has a separate column for each person who uses the petty cash. So the person who is responsible for managing the petty cash will keep this book and record all transactions.

Here is an example of a Columnar Petty Cash Book:

Advantages

• Provides a detailed record of all transactions.
• Easy to identify who used the petty cash.
• Helps to keep track of individual expenses.

Disadvantages:

• Can be time-consuming to maintain.
• Not suitable for businesses with a low volume of petty cash transactions.

Imprest Petty Cash Book

Imprest Petty Cash Book is a type of bookkeeping system that is used to maintain a fixed amount of petty cash. This system works on the principle of a fixed amount of money that is always maintained in the petty cash fund. 

The person who is responsible for managing the petty cash fund is requires to keep a record of all transactions made from the petty cash.

Here is an example of an Imprest Petty Cash Book:

In this type of book, there is no separate column for the person who used the petty cash. So the petty cash fund is always maintain at a fixed amount, and the transactions are record in the order they occur.

Advantages:

• Easy to maintain and manage.
• Requires less time to record transactions.
• Suitable for businesses

Importance of Petty Cash Book

• Petty cash book maintains records of all petty payments systematically.
• Petty cash book supplies information regarding petty payments made on different heads more easily and quickly.
• This cash book makes it possible to make a comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively.
• Petty cash reduces the burden of head cashier as he is not required to handle petty transactions.
• Petty cash book helps in making the main cash book more informative, clean, and clear by including only major transactions.
• This cash book helps in making the records of cash transactions up-to-date because of the division of labor in recording cash transactions.
• Petty cash book saves time because each payment under a particular head is not posted into the ledger separately.

Key Points

• Petty cash book is used to record small expenses such as postage, telegrams, and office sundries in businesses.
• A separate column is allotted for each type of expenditure in a petty cash book.
• The debit side of the petty cash book has only one money column, while the credit side consists of several analysis columns.
• Every payment made by the petty cashier is recorded twice in the total column and the appropriate expense column.
• The total of the “total column” on the credit side should agree with the total of all subsidiary columns, and the difference between the debit and credit items represents the balance of the petty cash in hand.
• The posting from the petty cash book to the respective accounts in the ledger is made directly in total at the end of every month or any other fixed period.

How to Maintain Petty cash Book

Establishing a Petty Cash Fund

To maintain a petty cash book, you first need to establish a petty cash fund. This involves setting aside a fixed amount of money to cover your business’s petty expenses. The amount you set aside will be determine by the size of your business and the volume of petty cash transactions you conduct.

The amount of money you set away will be determine by the size of your business and the volume of petty cash transactions you conduct. Only authorized personnel should have access to the petty cash fund.

Recording Petty Cash Transactions

The next step in maintaining a petty cash book is to record all petty cash transactions. This involves keeping track of every transaction made from the petty cash fund. This information should be record in a petty cash book, which can be in the form of a columnar or imprest petty cash book.

So when recording a petty cash transaction, you should include the following information:

• Date of the transaction
• Payee/Particulars
• Amount of the transaction
• Name of the person who made the transaction (if using a columnar petty cash book)
• Remarks or purpose of the transaction

It is important to record all petty cash transactions as soon as they occur. This helps to ensure that your petty cash book is accurate and up-to-date.

Refilling the Petty Cash Fund

As you use the petty cash fund, you will need to replenish it periodically. This involves adding more cash to the fund to bring it back to its original amount. So the frequency of replenishing the petty cash fund will depend on the volume of petty cash transactions you make.

To Finish the petty cash fund, you should follow these steps:

1. Count the remaining cash in the petty cash fund
2. Add up the total amount of petty cash expenses that have been recorded in the petty cash book
3. Calculate the difference between the total petty cash expenses and the remaining cash in the petty cash fund
4. Prepare a check or cash to bring the petty cash fund back to its original amount
5. Record the replenishment transaction in the petty cash book

Additional Points to Consider

Here are some additional points to consider when maintaining a petty cash book:

• Assign a specific person to manage the petty cash fund and maintain the petty cash book.
• Limit the number of people who have access to the petty cash fund to reduce the risk of theft or misuse.
• Conduct regular audits of the petty cash fund to ensure that it is being used appropriately.
• Implement a policy for petty cash use and ensure that all employees are aware of the policy.