Analytical petty cash book and the imprest system

IN ALMOST All businesses, the cashier or petty cashier is given a small sum of money for the sole purpose of meeting small/petty expenses such as postage, cleaning, petrol, travelling expenses and other miscellaneous and sundry expenses. The book in which the petty cash expenditure is recorded is known as the petty cash book.

The petty cash book is maintained on a columnar basis, i.e.:

1. A separate column being allotted for each type of expense.

2. There is only one money column on the debit side, in which all monies received by the petty cashier are entered.

3. The credit side has several analysis columns.

4. Every payment made by the cashier is entered on the credit side twice: i. The amount is recorded in the total column. ii. The amount is recorded in the appropriate column to which the expense is concerned.

5. The total of the ‘total column’ must agree with the total of all subsidiary columns.

6. The difference between the total of the debit items and the ‘total column’ on the credit side at any time represents the balance of the petty cash in hand.

7. This total of the petty cash in hand should tally with the petty cashier’s actual cash in hand.

The posting from the petty cash book to the respective accounts in the ledger is made directly and in total at the end of every month or on the fixed day or any other date dictated by the business.

THE IMPREST SYSTEM

Under this system, a float, also known as a fixed sum of money, is given to the petty cashier to cover the petty expenses for the month. At the end of the month, a statement of petty expenses is submitted to the accountant by the petty cashier. Upon receiving the statement, the accountant refunds the petty cashier the exact amount spent during the month, thus making the imprest for the next month as it was at the beginning of the previous month. The amount of cash in the hand of the petty cashier is a part of the cash balance and, therefore, must be included in the cash balance when the cash balance is shown in the trial balance and the balance sheet. The petty cash book is a branch of the cash book.

The main advantages of the imprest system of the petty cash are: a. It acts as a healthy and reliable check on the petty cashier as the petty cashier has to produce the petty cash book, accompanied with the vouchers, for inspection to enable refund/reimbursement.

b. The petty cashier cash book must be kept up to date to account for all expenses paid for before further funds will be disbursed. Just a reminder: a. Reimbursement equals the total amount spent in the month. b. At the end of each period, add up the totals column. c. The total of each expense column is debited to the expense account in the general ledger.

The last column in the petty cash book is a ledger column used to record items paid out of petty cash, which are to be posted to sales and purchases ledgers.

This is where we will end for this week. Join me again next week as we continue to complete the syllabus. Grasp the concepts and retain them; you will need them as you progress to excellence. See you next week.