The small amount of money that organizations spend on day to day purchases, like transport fare for a staff going out for official work or buying stationery, etc., that cannot be made by cheque or credit card is termed as petty cash.
Petty cash book
The ledger or register that is used to keep record of the petty cash fund is called petty cash book. All additions or subtractions to and from the petty cash balance are accounted in this book.This is a cash book is maintained to reduce the hassles of maintaining the main cash book that involves huge transactions.
Generally, a petty cashier, also called a custodian is appointed to maintain the petty cash book. A particular amount of money is provided to the custodian to meet the small monetary requirements of the organization for a particular period of time. The custodian records all his expenses for that period of time.
Only petty requirements are met with this cash. The cash is reimbursed after the specified period after checking the records in the petty cash book. People who work as custodians can search petty cash book homework answers on the online sites to get more details about how to manage the petty cash book efficiently.
Different systems used for petty cash accounting
- The Open System
This is a system where the chief cashier gives a required sum of money to the custodian to meet the petty expenses. When the amount gets over, the custodian can again ask for a required sum from the chief cashier.
- The Fixed Advance System
This is a system where the chief cashier gives a fixed sum of money to the custodian for a specific period of time. The money is replenished after the specific period irrespective of the fact whether the custodian has used up the money given to him or not. For example, if the custodian gets $250 to be spent for a month, then he will get the same amount again the next month whether he has spent the money received earlier or not.
- The Imprest System
This system of petty cash management is generally used by big organizations. The petty expenses for a fixed period are calculated beforehand and given by the chief cashier to the custodian in advance.
This is called Imprest cash. When the fixed period gets over, the custodian has to submit the statement of petty cash expense to the chief cashier; this statement is then tallied by the chief cashier. Then an amount which is equal to the amount spent is given to the custodian for the next period such that the amount given when added to the left over amount will be equal to the Imprest cash.
So, in this method, the custodian always starts with an amount equal to the Imprest cash. One can search online for petty cash book homework answers to get more examples on the Imprest System.
Managing petty cash book efficiently
There are mainly two part of petty cash book management â€“
- Establishing the petty cash process:
- A lock box â€“
A lock box forms an integral part of maintaining petty cash as it is used to store cash along with all the receipts proving the expenditures. The box should ideally be made of metal and should be of a small size so that it can easily be stored in drawers.
There can be a key lock or a combination lock system to keep the cash safe depending on the requirement of the organization. The size should be ideal to keep the required cash, presence a money tray in the box can be of added advantage. These kinds of boxes are easily available in stationery shops.
- Assignment of petty cash responsibility â€“
After arranging the box, the second important thing is to assign somebody, responsible enough to take charge of handling the petty cash. The person assigned, also called the custodian should be available for office staff whenever they require cash.
The custodian generally has to provide petty cash to the employees in return of receipts; he has to get the petty cash replenished whenever necessary and also keep record for all the expenditures. More explanation on responsibilities of the custodian can be derived from online sites with links like petty cash book homework answers.
- Storage of the petty cash box â€“
The petty cash box should be stored in a locked drawer that is usually placed near the custodian. The keys for opening the box should be placed in a different drawer. In case of multiple custodians, there should be multiple key systems.
- Withdrawal limit should be defined â€“
Petty cash system is executed so that small expenses where usage of cheques or credit cards is not possible can be carried out in a hassle free manner. So, there has to be a limit to the expenditure amount, beyond which, the normal transaction methods can be used.
- Cash deposition in the fund â€“
There should be a thorough idea about the amount required in the petty cash fund and the same needs to be derived from the chief cashier. The amount needs to be sufficient to carry out the requirements for the fixed time period.
The amount should not be so much that it encourages theft. The money should be kept with smaller denominations which will be comfortable to be spent on small purchases. It is also advisable to have coins in the fund.
- Creation of petty cash book â€“
From the first petty cash payment, the custodian needs to maintain a register. All the cash transactions that are being carried out from the petty cash fund should be recorded in the petty cash book. The log should have separate columns for deposits, transactions, replenishment. To learn more about the format of the petty cash book, learners can search for petty cash book homework answers online.
- The petty cash fund should be on the accounting records of the company â€“
Petty cash is also an asset account like any other form of cash. Thus the transactions of the petty cash fund should also be maintained in the accounting records of the company.
- Usage of petty cash money â€“
Once petty cash money is available, the company employees can start using this for their small purchases. The custodian needs to check the receipt for every cash transaction. Money should be provided to any staff only on presence of valid receipts. After checking the receipt, the custodian has to give the money with exact denominations and note the transaction with its date and details and keep the receipt in the box as well.
- Petty cash expenditure management:
- Cash replenishment â€“
The custodian needs to replenish the money in the petty cash fund whenever required. Every time cash is replenished, the custodian needs to begin a new log. Every time, the fund finishes, proper expense report with supporting receipts need to be given to the chief cashier. To learn how to support transactions with receipts, one can search petty cash book homework answers online.
- Accounting petty cash transactions as per category â€“
After making a list of transactions, they should be categorized as per category of expense and then supplied with the necessary receipts. Categories include office needs, postage, transportation, etc.
Thus the petty cash book helps a lot in executing small purchases in an organized way. A good custodian is the most important part of petty cash book management. Anyone searching for petty cash book homework answers can look for links online.