The base characteristic of an imprest system is that a fixed amount is reserved, which after a certain period of time or when circumstances require, because money. What are the advantages of using the imprest system. The imprest petty cash system is a method of accounting for petty cash expenses. In a business operating this type of cash book, small cash payments are usually made out of petty cash. This makes the entire petty cash system susceptible to abuse. The imprest system is a form of financial accounting system. The fundamental difference between the main cash book and the petty cash book is that only petty expenses are recorded in the petty cash book. Petty cash book definition, types, format, examples. First, management has to estimate how many small purchases it will make and much money it will need for these purchases. What is the petty cash imprest system, and why would a. Manage your business expenses anytime, anywhere with debitoor invoicing software. The petty cash book is to enter how the cash available for daily expenses are spent for example milk, tea, taxi charges and. Ordinary system of petty cash fund under this system petty cashier is given a certain amount of cash for meeting petty expenses of the office, when he spends nearly the whole amount, he submits.
The petty cash fund can be operated in the following two ways. This can be handled by a junior member of the staff, making it. Related topic difference between cost and management accounting. In module 12, which covered the bank cash book, the advantages of paying all cash and cheques into the bank intact were evident. From the following particulars prepare a petty cash book under imprest system. All receipts are recorded on the debit side and all payments are recorded on the credit side of petty cash book by the petty cashier. Many expenses of small nature are recorded in petty cash book. These include receipts from customers and payments to suppliers as well as bank charges, interest received, etc. The analytical petty cash book and the imprest system. The petty cash book makes use of cash float at the beginning of the period while the cash book makes use. The initial fund would be created by issuing a cheque for.
In the main cash book all cash payments except payments of petty cash exps. If a business uses the imprest system, it will create an imprest. It should also be kept in mind that petty cash book is not like the cash book. In most cases, the petty cash book is an actual ledger book, rather than a computer record.
Any cash, which the petty cashier receives, will be recorded on the debit side left cash column of the book and any cash which he pays out will be recorded on the credit side right cash column of the boo k. The balance of the petty cash book will be shown on the asset side of balance sheet as cash in hand at the end of the year. The book has one column to record receipt of cash which is only from the main cashier and other columns to record payments of various types. The most common imprest system is the petty cash system. Cash book, pass book, bank reconciliation statement dr. Cash book definition, example and format of cash book. A book in which bank cash transactions are recorded.
The additional analysis columns are used to analyze expenditures as they arise. Meaning of petty cash book, its importance and advantages. In this video, i will teach you about petty cash book. The petty cash book accounts for the cash spent on this short term arising needs of the company and it is necessary for accountability for the expenditure on the. 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. Under the imprest petty cash system, the petty cashier amount is fixed for a given time period under which is usually under a month or a week.
No receipt with the exception of money received from the chief cashier, however small it may be, is recorded in it. A s the petty cashier has to produce to the chief cashier the petty cash book for inspection, it acts as a healthy check on the petty cashier. The system is a form of managing petty cash in a business. All expenditure out of the petty cash must be properly authorised. The petty cash imprest system allows only the replenishment of the spend made. Second, a check is written for this amount, and the cash is given to the cashier in charge of the petty cash fund. Recording all of these transactions in the cash book can get to be very tedious and cumbersome. Petty cash book maintains records of all petty payments systematically. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments. The petty cash book is a document in business used for recording misclenius expenditure this are the unplanned and shallow demands that may arise in the daily running of the business.
Cash book is a book of original entry in which transactions relating only to cash receipts and payments are recorded in detail. Under this imprest system of petty cash book, the head cashier provides a. Petty cash book contains daily office expanses like tea, stationary etc. Petty cash book 2019, imprest system of petty cash. Definition of petty cash petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. A business has various sources of cash as well as different ways of. Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. As the disbursements are for petty item hence the name petty cash. 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. How the imprest system of petty cash book works your. Petty cash book is based on the division of labour and works on imprest system. Which of the following explains the imprest system of operating petty cash.
One of the famous principles of management is control by exception which means that if one person tries to control everything, he may end up controlling nothing. This type of book is maintained just like a cash book. Petty cash book explanation, format, example, ordinary. 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. Differences between main cash book and petty cash book 1. A separate column is allotted for each type of expenditure. There are two primary types of entries in the petty cash book, which are a debit to record cash received. The exact amount of expenditure is reimbursed at intervals to maintain a fixed float c. For smallscale business, simple petty cash book is sufficient but on a medium or large scale business number of petty expenses increases hence it is desirable to have the separate record for each type of petty expenses.
The points given below are noteworthy, so far as the difference between cash book and cash account is concerned. An imprest system is used to run and manage a petty cash fund. A fixed balance is maintained in the account, and it is replenished routinely to maintain that. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible.
Before the rise in the use of credit cards and charge cards, nearly all companies used petty cash accounts to allow employees responsible for purchasing small supplies to do so with minimal hassle. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. The cash book and 8 the petty cash book ethaksalawa. Such a system is known as the imprest system of pettycash. And so this responsibility is divided between the cashier and the. The bigger the company, the harder it is to track outgoing petty cash, change and receipts. A petty cash is a cash book used to enter all small or petty expenses obtained. While convenient for small purchases, it is not a realistic solution for larger expenses. Thus, the book is part of a manual recordkeeping system. The system is very useful specially if an analytical petty cash book is used.
The main advantages of petty cash book publish your article. An imprest is a cash account that a business uses to pay for small, routine expenses. What are the advantages of maintaining a petty cash book. Receipts are recorded on the debit the left hand side, and payments are recorded on the credit right hand side. Petty cash is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing, and then cashing the cheque the most common way of accounting for petty cash expenditures is to use the imprest system.
The most common example of an imprest system is the petty cash system. The difference between the amount of cash receipt and the total amount of cash. The cash is given to the petty cashier either on ordinary system or imprest system which are briefly explained below. By watching this video you will understand how to record all the entries in the petty cash voucherreceipt book. Entries are recorded just like a ledger account with the help of. Imprest system of petty cash book the amount which the main cashier hands over to the petty cashier in order to meet. When cash is received it is entered on the debit or left hand side. A petty cash book is an accounting book used for recording expenses which are small and of little value.
A difference between an imprest payroll account and petty cash is petty cash is. The petty cash book will be maintained by a separate cashier known as petty cashier in the accounting field. Totals are carried forward from page to page until the end of the periods. Difference between cash book and cash account with. The difference between the total of the debit items and that of the total column on the credit represents the balance of the petty cash in hand. Which of the following explains the imprest system of. Cash imprest petty cash policy statement based on the cost centers request, the university assigns to one fulltime employee per cost center a petty cash fund commensurate to average departmental minor operating needs and obligations. The amount will be below or equal to the limit set by the guidelines to this policy. Under this petty cash book system, a lump sum amount of cash money is given to the petty cashier.
It may be maintained by ordinary or by the imprest system. What is difference between main cash book and petty cash book. At the end of the period a petty cash reconciliation is carried out. Imprest system of petty cash is a system where the petty cashier is given a lump sum in cash often called a float keeping in view the possible needs of the business to meet its petty expenses for a stated period, e. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. Overall, petty cash is a largely outdated and inefficient system. The imprest system is an accounting system designed to track and document how cash is being spent. Using imprest, the petty cash of a company is kept at a constant rate. 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. The check written to establish a petty cash fund in entered in the general journal by. Similarly, when cash is paid out the same is recorded on the credit or right hand side of the cash book. Each time money is withdrawn, a voucher must be placed in the cash box to account for any missing funds.
Petty cash book introduction cash book accounts class. Petty cash book imprest and ordinary petty cash systems. Petty cash book is maintained to record small expenses such as postage, stationery, telegram. The cash account is a ledger account and so posting in a cash account is made only when the original entry of the transaction is made somewhere else. The petty cash book is a formal summarization of petty cash expenditures, sorted by date.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. Petty cash and the imprest cash float system college. Petty cash book format example definition explanation. So, if you start the month with 100 in your petty cash float and spend 90 of that cash in the month, an amount of 90 will be then placed in your petty cash float to bring the balance of your petty cash float back to 100. The main advantages of imprest system of petty cash are as follows. The petty cash book is ruled in the form of the single column cash book with an amount column and addition oat columns for the more usual classes of expenditure. The cash allocated for petty expenditures for a specific period is entered on the credit side of general cash book and on the debit side of petty cash book. Understand how the imprest system works in the petty cash book.
1491 1026 1234 773 705 1609 1282 1396 161 215 1331 205 1139 461 1635 276 442 897 537 84 1309 384 1544 7 27 848 1015 582 1551 613 1113 1408 204 26 930 1429 429 532 1323 1344 1130 1245