Petty Cashbook

Another name that is sometimes used to refer to Petty Cash is an “imprest fund”. This is just a fancy name that describes a special fund that is set up and used for minor and unanticipated cash expenses where a cheque can’t be written or the amount is so small that you don’t want to write a cheque. Some examples include buying pizza for the staff, postage stamps, minor office supplies, paper towels, and cleaning supplies. A pre-numbered voucher or ticket should be filled out and approved for each expenditure. When the balance in the fund becomes low a check from your regular bank account should be issued and cashed to replenish the fund and the expenses recorded in your accounting records. Surprise counts of petty cash should occasionally be done to make sure that employees are not “borrowing” from this source of cash. Counting the fund is very easy. The total amount of the tickets and the cash on hand should equal to the fund’s established balance.

The petty cash (actual cash and all the supporting vouchers and receipts) is normally kept in a locked drawer or box and one individual is assigned or designated as the custodian of the fund. The custodian is responsible for all the petty cash activity. Individuals should also be designated who have the authority to approve payments using petty cash. This could also be the custodian of the fund.

How do you set up a Petty Cash Fund?

Determine the balance or amount of cash needed during a month to handle cash payments for such items as stamps, COD shipments, office supplies, or any other types of payments where writing a check is not practical. This balance is referred to as a “float”.

Designate an individual or petty Cashier to handle the petty cash book.

Payment is made to the Petty cashier for the amount determined to be needed (The Cash Float), who then places the funds in a locked drawer or box. The accounting records would be to debiting Petty Cash and crediting Cash in the Cash Book.

How do you operate the Petty Cash Fund?

All petty cash disbursements are made from this fund. A book or worksheet is maintained that records all the payments made and why and what for they were made. Your chart of accounts is used to determine what account(s) to charge the payment to.

A pre-numbered ticket or voucher is approved, signed by the person receiving the cash, and prepared for each expenditure made from the fund and any supporting documents such as an invoice or receipt is attached when the voucher is settled for.

The total of the cash in the fund plus the total of all the tickets and vouchers should always equal the balance established for the fund. In other words if your petty cash fund amount is $500, the total of the tickets paid and the currency on hand should equal $500.

Surprise counts of petty cash should occasionally be performed in order to make sure that employees are not “borrowing” this cash.

How do you replenish the Petty Cash Fund when it “runs out” of cash?

At the end of a month or whenever the amount of currency (actual cash) in the fund becomes low a summary is prepared of all the settled vouchers assigning the payments made to the appropriate expense or other categories (accounts) which is used to record the debits to the expense and other accounts and the total credit to the cash account in the Cash Disbursements Journal.

The current balance of the fund should also be checked by adding up all the currency still on hand and the total of all the vouchers and tickets. This total should agree with the balance assigned to the fund. In other words, if the funds assigned balance is $500 the total of all the tickets and vouches and currency should equal to $500.

A cheque is then prepared and made payable to the Petty Cash Custodian and recorded in the Cash book.

How do you increase or decrease the Float?

To increase the Petty Cash fund balance, you simply prepare a check made out to the Petty Cash Custodian for the amount of the increase to the Petty Cash Fund. For example, if your current fund balance is $100.00 and you want to increase the Petty Cash fund to a balance of $200.00, you would issue a check for $100.00 and record the cheque in your Cash Disbursements Journal as a debit to your Petty Cash Account and a credit to your Cash In Bank Account.

The following Petty Cash Book transactions are entered below:

2010

November 1    Cash of $5 000 deposited to Petty Cash account from cash book

November 2    Wages of $100 paid to casual Labourer

November 3    Stamps were bought for $300.

November 5    Floor Polish bought for $50

November 6    Office Worker paid Taxi Fare to travel to special meeting

November 7    Painter paid wages for repainting wall in kitchen

November 10  Office Worker paid Bus Fare to travel to special meeting

November 12  Paper bought for general office purpose

November 19  Bought brushes $60 to clean canteen and office floors

November 21  Ink bought for office use

November 22  Paid a creditor Paul Freddy $400 out of Petty Cash

November 30  Cash of $1 700 deposited to Petty Cash account from cashbook as reimbursed of cash used throughout the month of November Petty Cash Float balance remains $5 000

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