Petty Cash Book
Subject: Business Studies
CLASS: JSS 2.
Objectives: By the end of the lesson, the students
should be able to know the following.
·
Explain the
meaning of petty cash book.
·
State the
need for keeping a petty cash book.
·
Analyze items
of expenditure and record them correctly in the petty cash book.
Week one Day one
Introduction
As a business grows, the
accounting system also grows. In this case, small payments that are best paid
in cash instead of by cheque can become a problem. This chapter will discuss
the petty cash book as a means of keeping money available for small payments.
Meaning of
Petty Cash Book
Petty means small. An
amount of cash kept on hand and used for making small payments is called
petty cash.
A petty cash book
is a ledger bound separately for recording all small payments made in cash out
of an agreed sum of money. The main reason for using a petty cash book is to
free the cash book from details of small payments.
The petty cash book is
usually put in the care of a clerk called petty cashier. Payment made by
the petty cashier is supported by a petty cash voucher showing the reason for
the payment and the signature of the person receiving the money.
Need for keeping a Cash Book
A petty cash book is
established by giving agreed sum of money to the petty cashier. The petty cash
book is kept separate from all other cash, in a small box in the office safe. A
business need to keep a petty cash book for two main reasons:
1. If small cash payments are made by senior
officers, a lot of their time will be taken up. The time used up could have
been used for more important jobs. If a petty cash book system is established,
this job can be given to junior members of staff.
2. If all small payments are entered into the
main cash book, it would mean that each of these items would have to be posted
to the different ledgers. However, if a petty cash book is kept, the total of
such expenses is the only thing that needs to be posted to the ledger either
weekly, monthly or quarterly.
DaY TWO
Systems of Petty Cash Book-Keeping
1. Open
System
Under the open system,
the petty cashier at first receives from the chief cashier a fixed amount of
money for meeting petty expenses. As soon as the said amount is spent, the
chief cashier again pays the required sum to the petty cashier.
2. Fixed
Advance system
Under this system, the
petty cashier receives from the chief cashier a fixed sum of money for a fixed
period of time: for example, #40 000.00 per month.
The chief cashier pays this #40 000 to the
petty cashier every month irrespective of whether the petty cashier spends the
total sum or not.
3.Imprest
System
Imprest system is
generally followed by most business concerned. This consists of a balance which
is replenished at the end of a given period. The original amount given to the
petty cashier is called an imprest.
There are three stages in
the method of operating the imprest system. They are:
1. The chief cashier gives the petty cashier a
sum of money, enough to cover a month or an agreed period: #60 000.00
2. During the agreed period, the petty cashier
pays out for small purchases: #43
300.00
Petty cash in hand at the
end of agreed period: #16 700.00
3. At the end of the agreed period, the petty
cashier receives a sum of money to bring the money back to the original sum: #
43 300.00
Money at beginning of new
period #60 000.00
Analysis of Items of Expenditure
Expenditure means cost.
There are four (4) main types of expenditures made under the petty cash system.
They are:
1.
Postage: This include
stamps, parcels and facsimile (fax).
2.
Stationary: This
includes items such ballpoint pens, erasers and envelopes.
3.
Travelling expenses: This
includes airplane, railway, bus and taxi fares.
4.
Miscellaneous expenses: This
includes items such as repairs carried out on facilities, sugar, milk and
tea/coffee for office use, telephone bills etc
These four
(4) examples do not cover all the different types of expenditure that
businesses operate under the petty cash system. Each business will have it's
own way of identifying the type of expenditure that should go through the petty
cash system.
DAY
THERE
Preparation of a Petty Cash Book
When the
petty cashier is given an amount of money as imprest for an agreed period, the
general cashier posts the amount on the credit side of the cash book
(cash Column) while the petty cashier enters the same amount on the debit
side of the petty cash book.
Worked
examples
# : k
Sept. 1 General cashier gave an imprest to
petty cashier 20 000.00
Payments made out of petty
cash during the
month of September
are:.
Sept. 2 Bought postage stamps 100.00
Traveling expenses
5000.00
Sept. 3 Paid for stationery
1500.00
Sept. 4 Paid for printing
250.00
Sept. 5 Bought postage stamps
50.00
Sept. 14 Paid for bus fare.
450.00
Sept. 15 Paid for telegram. 200.00
Bought stationery.
1200.00
Sept. 16 Paid traveling expenses. 3200.00
Sept. 28. Paid O. Taiwo.
2500.00
The items of expenditure
for this example can be grouped into the following: Postage and Telegrams, Traveling expenses,
stationery and printing, and personal accounts. Let us now post them to the
petty cash book.
This is what happened
with the transactions column by column:
1. The amount received column records the
#20 000.00 on the debit side.
2. The cash book folio shows that the
amount given has been recorded in the cash book.
3. The date column shows when each
expenditure was made.
4. The particulars column shows the
details of each expenditure.
5. The voucher number shows the source of
each expenditure.
6. The total column shows every
expenditure made to give a final grand total.
7. Postage and Telegrams column stands for all expenditure made under it.
8. Traveling expenses column records all expenditures made under it.
9. Stationery
and printing column also records all expenditure made under it.
10. Personal account column is for payment made directly to an individual.
11. The amount spent out of the #20 000.00 is #14
450. 00,leaving a balance of#5 550.00. This means that on Oct. 1, the petty
cashier will receive the amount of #14 450.00, to be added to #5 550.00 to make
up the original amount of #20 000.00
12. GL4, GL8 and GL10 mean that these sub-totals
should be posted to General Ledger 4, 8 and 10
DAY FOUR
Summary: A petty cash book is used to record all small
payments made in cash out of an agreed sum of money. There are reasons for
keeping a petty cash book. The imprest system is a cash balance which is
replenished at the end of a period and there are procedures for preparing petty
cash book.
Exercise 1
1. Petty means .....................
2. Expenditure means ................
3. If you are a business owner, which of the
system of petty cash book-keeping will you adopt for your organization and why?
4. Define Petty cash book.
5. Give three (3) examples of expenditures under
the travelling expenses
6. Give four (4)
examples of expenditures under the miscellaneous expenses.
DAY FIVE
Exercise 2
Rule a suitable petty
cash book using separate column for postages, carriage and stationery. Balance
the book as at 16 December.
Dec. 5
Balance at hand. 10 000.00
Paid for postage
stamps. 50.00
8 paid for stationery. 750.00
9
paid for carriage. 200.00
10 paid for postage stamp 100.00
12. Paid for stationery. 1 200.00
14 paid carriage.
100.00
EXERCISE 3
Enter following in the
petty cash book, using appropriate expenditure column headings. The book is
kept in the imprest system. The amount of imprest is #40 000.00.
February 1. Petty cash in hand. 1
200.00
Cash received to make
up the imprest. 38
800.00
4. Paid
railway fare. 550.00
5 paid bus fair fare. 1 300.00
8. Bought one (1) rim of paper. 300.00
Paid
carriage. 250.00
Paid railway
fares. 180.00
Bought
envelopes. 250.00
10 Paid for computer repairs. 3 000.00
12. Paid office cleaner. 5 000.00
Balance the petty cash
book as at 20 February bring down the balance.
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