Chapter 11 - Petty Cash book and imprest system


A business may have a large number of small value payments which it has to incur on a daily basis. It will be difficult to manage the cash book with all these small entries. A petty cash book is used to record small cash payments made by the business. A petty cashier is responsible to prepare and maintain the petty cash book. The petty cashier is the only one who is authorised for payment of cash vouchers.

Advantages of Petty cash book

  • To remove small cash payments from the main cash book.
  • To reduce the number of entries in the main cash book and the expenses in the ledger.
  • To allow the chief cashier to delegate some of the work.
  • To reduce mistakes in recording small cash payments

Imprest System

In a company the level of cash that the petty cashier should possess would be determined by the management. This is called the “Petty cash float.” Using this float the petty cashier would incur the expenses during the month. At the end of the month the petty cashier would obtain a reimbursement of expenses incurred during the month, after which the petty cash float would be restored. This is known as the imprest system. It is a system where a reimbursement is made of the total amount paid in a period or it can also be called as a system where petty cashier begin each new accounting period with the same amount of petty cash.

Advantages of Imprest system

  • Allows chief cashier to control/limit/keep track of petty cash expenditure
  • The cash remaining and the vouchers received should equal the imprest amount
  • Can help to reduce/prevent fraud

Worked Example

Sarah maintains a petty cash book using the imprest system. The imprest amount is $250 and this is restored from the bank account on the first day of each month. Sarah had $38 in the cash till on 1 January 2019. The following transactions took place in January 2019.



$

January 1

Restored petty cash to the imprest amount

?

6

Cleaner repaid overpayment made in December

10

8

Paid Eva, a credit supplier

62

13

Purchase of refreshments for office

9

18

Paid Olivia, a credit supplier

43

21

Paid for taxi fare

14

24

Cost of flowers for office

10

31

Paid cleaner’s wages

80


Enter the above transactions in Sarah’s petty cash book. Balance the petty cash book and bring down the balance on 1 February 2019.

Sarah Petty Cash Book


Total received


Date

Details

Total paid

Office expenses

Travel


Cleaning


Ledger accounts

$

2019


$

$

$

$

$

38

Jan 1

Balance b/d






212


Bank






10

6

Cleaner repayment







8

Eva

62




62


13

Refreshments

9

9





18

Olivia

43




43


21

Taxi fare

14


14




24

Flowers

10

10





31

Cleaner

80



80





218

19

14

80

105



Balance c/d

42





260



260


2019



42

Feb 1

Balance b/d