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. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments. As the disbursements are for petty item hence the name petty cash. The most common way of accounting for petty cash expenditures is to use the imprest system. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. The total of petty cash on hand plus the amount of signed receipts or petty cash vouchers at any one time must equal the total amount authorized for the imprest account. The system is very useful specially if an analytical petty cash book is used. Petty cash is a unique account because it is often immaterial in amount.
During march the following petty cash receipts were found in the petty cash box. This occurs with an imprest petty cash system and an imprest payroll account. Petty cash book is a cash book in which the petty cashier records petty cash expenses. It should also be kept in mind that petty cash book is not like the cash book. Petty cash book 2019, imprest system of petty cash advantages. What are the advantages of using the imprest system. 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. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. Ideally, cash should be handled under the general principles of the imprest system, to wit. At the end of the period, the cashier submits the report and the amount spent by him is reimbursed so that. Meaning of petty cash book a petty cash book is one in which all petty or small payments made through petty cash fund are recorded systematically. The general system adopted for the recording of item in the petty cash book is refer to as the imprest systemin this system a specified sum is given to the petty cashier at the start.
The additional analysis columns are used to analyze expenditures as they arise. The usual and proper method of handling such payments is through a petty cash account maintained on the imprest system. A sum of money set aside for the purpose of paying small obligations for which the issuance of a purchase order and warrant would not be costeffective or the use of a pcard is not possible. The people in charge of the fund replenish the account with the same amount that was spent. To open the account, a check for a round sum sufficient to care for such expenditures for a month or other convenient period, is given to the cashier. To be honest, i never really nailed the imprest petty cash system when i was doing foundation either and i dont think i was the only one in my class.
One key component of the system is the need for documentation of all expenditures, which provides an excellent means of maintaining tight control over cash. Normally, there are more payments than receipts and therefore, the petty cash needs to be topped up with cash from the business bank account. A fixed sum is advanced at the beginning of every month. By watching this video you will understand how to record all the entries in the petty cash voucherreceipt book. 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. For free distribution 83 the following facts are discussed in this chapter.
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. An imprest is a cash account that a business uses to pay for small, routine expenses. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. Imprest petty cash question with answer college accounting. Petty cash book explanation, format, example, ordinary and imprest. Apr 29, 2020 such a system is known as the imprest system of petty cash. Imprest system petty cash book is quite helpful when the firm uses analytical petty cash book, wherein the book has one column to track the receipt of the amount, from the chief cashier and several other columns to write down expenses under the specific head. 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. A fixed balance is maintained in the account, and it is replenished routinely to maintain that. Petty cash is a small reserve of used for transactions and expenditures where it doesnt make sense to write cheques.
Daily receipts on collections must be deposited intact with the proper. Under imprest system, a fixed amount of money known as float is given to the petty cashier to meet petty expenditures for an agreed period which usually consists of a week or month. Such a system is known as the imprest system of pettycash. The initial fund would be created by issuing a cheque for. Jul, 2019 the imprest system is an accounting system for paying out and subsequently replenishing petty cash. Under this time period, the cashier has to run the petty cash account under the given budget.
Second, a check is written for this amount, and the cash is given to the cashier in charge of the petty cash fund. The petty cash book is the book for recording small disbursement, the rational behind the system is to reduce the numerous cash payment for small expenses. Setting up a petty cash system is pretty straightforward and can be accomplished in eight easy steps. Ledger for petty cash record keeping large 120 pages business accounts petty cash log book. At the end of the period a petty cash reconciliation is carried out. What is the difference between an imprest and nonimprest. Jan 31, 2010 petty cash is a unique account because it is often immaterial in amount. No doubt if i read it now id understand it but at the time, i never got it so kind of ignored it. Abc enterprise has the following petty cash transaction for the month of january 2012. In a business operating this type of cash book, small cash payments are usually made out of petty cash. Apr 26, 2020 the petty cash book is a formal summarization of petty cash expenditures, sorted by date.
From the following particulars prepare a petty cash book under imprest system. An imprest system is an accounting system that involves monitoring and managing petty cash payouts and subsequent replenishment. The second system of petty cash is the imprest system. Under imprest system, a fixed amount of money known as float is given to the petty cashier to meet petty expenditures for an agreed period which usually consists.
The imprest system many groups use an imprest system for their petty cash. Petty cash imprest sortmybooks helpdesk updated march 31, 2019 15. This is so because, as explained later, subsequent checks drawn to replenish petty cash are not debited to petty cash account, but are charged directly to the various accounts for which the petty cash funds have been expended from this petty cash fund the cashier makes such payments as are necessary, recording each one in a book similar to that shown in form 4. Only payments in small amounts may be made through the petty cash fund. The controllers office shall take the necessary steps to effect the name change on the university financial system. In module 12, which covered the bank cash book, the advantages of paying all cash and cheques into the bank intact were evident. The analytical petty cash book and the imprest system. 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 most common imprest system is the petty cash system. The imprest petty cash system is a method of accounting for petty cash expenses.
A petty cash fund is established, with a set amount of cash. How the imprest system of petty cash book works your business. At the end of agreed period, the petty cashier submits the details of all expenditures incurred by him to the chief cashier. Cash book, pass book, bank reconciliation statement dr. A fixed sum is advanced at the beginning of the period. Also known as a two column cash book, a double column cash book is the one which has a bank column in addition to the regular cash column. Using imprest, the petty cash of a company is kept at a constant rate. This amount will always appear on the balance sheet report under the title of petty cash and is the imprest amount. The attached article explains best practice for this. The imprest holder should document the process of handing over the imprest fund cash and documents to the new holder, and a copy of the handing over report should be sent to the controller. Petty cash book is maintained by the petty cashier. This is called the cash float or petty cash account. Jun 21, 2007 this is called the cash float or petty cash account. Cash the cheque and create your first petty cash fund.
Each time money is withdrawn, a voucher must be placed in the cash box to account for any missing funds. 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. Below is a very simple worked question and answer for the reader to enhance the understanding of imprest petty cash system. Start maintaining a general ledger in which to keep track of the petty cash and petty cash. Totals are carried forward from page to page until the end of the periods.
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. Petty cash book explanation, format, example, ordinary and. The imprest system is designed to provide a rudimentary manual method for tracking petty cash balances and how cash is being used. Petty cash funds, referred to as imprest funds in minnesotas statutes, are authorized for school districts, towns, counties, and cities. Here the petty cashier is given a lump sum amount of money at the beginning of the accounting period. Perfect for maintaining accurate business accounts and monitoring petty cash flow.
A fixed sum is advanced as and when the previous advance is spent. First, management has to estimate how many small purchases it will make and much money it will need for these purchases. Meaning of petty cash book, its importance and advantages. Petty cash book explanation, format, example, ordinary. When cash is paid from the checking account, the entry is a debit to the various expenses for which receipts are being supplied by the petty cash. You will also need to agree the maximum amount of money to be kept in the petty cash tin at any one time. Petty cash and the imprest cash float system college. The imprest system is a financial accounting system designed to track and document how cash is being spent.
Thus, the book is part of a manual recordkeeping system. The main advantages of imprest system of petty cash are as follows. Petty cash book can be maintained either in a simple or in analytical way. Petty cash is a small reserve of cash kept onsite at a business location for incidental cash needs. An imprest system is used to run and manage a petty cash fund. Petty cash implies a small amount of cash in hand, with the petty cashier. If you havent set aside money into petty cash imprest is lending money to. Under the imprest system, the amount of money in the petty cash is kept at a fixed sum or float eg. Create a petty cash account and write out a cheque for the appropriate amount. 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. The imprest system is a form of financial accounting system. The system is a form of managing petty cash in a business. 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 was spent, it will be replenished. 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.
How the imprest system of petty cash book works your. For example you may decide that the maximum level of petty cash should be. This period could be a week, a month or even sometimes a day. The various columns are totalled to show the reason for making payments, and then the. Just like the other type of books, it records receipts from cash and bank on the left side and payments on the right side. The more scientific method of maintaining petty cash so for introduced into practice is the imprest system. Start maintaining a general ledger in which to keep track of the petty cash and pettycash. The money in the hands of petty cashier is limited to the imprest amount, thus the risk of misuse of cash or fraud is minimized. Due to the fact that these are cash funds currency in the form of coins and bills, extra security precautions should be taken to safeguard these funds.
The general system adopted for the recording of item in the petty cash book is refer to as the imprest systemin this system a specified sum is given to the petty cashier at the start of the accounting,this amount is called thefloatthis amount should be sufficient to cover the estimated petty cash book expenditure for stated period. Petty cash is the small cash reserves that businesses keep on the. This is recorded as a separate account in the companys. These small cash payments are recorded in a separate book, known as a petty cash book. 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. While recording the transactions in petty cash book if all the expenses are analyzed and entries are recorded in cash book on the basis of this analysis such petty cash book is called analytical petty. At the end of the fixed period or earlier, when petty cashier needs further cash, he submits the petty cash book, along. While reimbursing the petty cash expenses, the main cashier will necessarily examine the petty cash book to make sure that the amount is. This can be handled by a junior member of the staff, making it. Financial accounting multiple choice questions mcqs page 7. Understand how the imprest system works in the petty cash book. There are two primary types of entries in the petty cash book, which are a debit to record cash received.
The account is verified because of the potential for defalcation and the clients expectation of auditor consideration when the amount is immaterial. Under this system, a round sum of money estimated as necessary for the possible needs of the business to meet petty expenses for the week or fortnight is handed over to the petty cashier. In most cases, the petty cash book is an actual ledger book, rather than a computer record. Nov 23, 2015 understand how the imprest system works in the petty cash book. Petty cash book 2019, imprest system of petty cash. The imprest system is an accounting system for paying out and subsequently replenishing petty cash. This can be handled by a junior member of the staff, making it simpler for management. The following financial accounting mcqs are collected from different past papers and from accounting mcqs bank.
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