Purpose of preparing petty cash book

This book records all those expenses which are small in amount and which are incurred on regular basis. Petty cash book can be expressed as a formal summarization of the petty cash expenditures which refers to the daytoday normal. It is another cash book which is maintained, generally, in large business concerns to reduce the burden of main cash book, in which numerous transactions involving petty small amounts are recorded. A doubletwo column cash book to record cash as well as bank transactions. The petty cash book is a book of vouchers which are made each time an expense is made from petty cash money. Petty cash works on the imprest system, in which there is an initial amount of money put into an account, which is drawn upon for a specific purpose in this case, petty cash. All the receipts in cash are recorded on the left side of the cash book entries. Simple steps to create dynamic petty cash book with ms excel. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. It is another cash book which is maintained, generally, in large business.

Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Cashbook is a financial journal which contains all the cash receipt and cash payments including the deposit in bank and withdrawal from the bank. Define the purpose and use of a petty cash fund, and. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books. There are the two methods of preparing petty cash book.

Petty cash book the cash book as seen above is used for recording all major payments. The cash book is updated from original accounting source documents, and is therefore a book of prime entry and as such, can be classified as a special journal unlike other special journals such as the purchases journal or the sales journal, the cash ledger book records debit and credit entries. Every time you make a purchase, make a note in the book that includes date, amount your spend and the nature of purchase. For this purpose, he is given a small amount and a separate book to. Cash book explanations show your love for us by sharing our contents. Petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check. Petty cash book is an accounting book used for recording expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc these are expenses which are incurred day after day. The ending balance of your version of the cash records is known as the book balance, while the banks version is called the bank balance. One is used to record cash transactions, the second is used to record bank transactions and third is used to record discount received and paid. The information in your petty cash book is part of a larger accounting system that explains your companys financial activity for tax purposes and also distills. A petty cashier makes a detailed analysis of petty payments and records under suitable heads, i. These small expenditures are usually paid using coins and currency notes rather than checks.

Keep the petty cash book and box or tin in a safe place, such as the accountants or managers office or cubicle. It is extremely common for there to be differences between the two balances, which. The statement of cash flows is a financial statement listing the cash inflows and cash outflows for the business for a period of time. Petty cash book supplies information regarding petty payments made on different heads more easily and quickly. The small cash transactions taking place a significant number of times daily if recorded in a general cash book may make it bulky and difficult to handle. With this information, the senior executives can quell the doubts that financial commentators might have on the state of liquidity of the company and operational capacity of senior leadership.

This is the simplest form of cash book and is used in businesses where payments are made and received mostly in cash and where usually no cash discount is received or given. A petty cash book takes in relevant details concerning purchases. This is why the cash balance per bank and cash balance per books seldom agree. Thus, the book is part of a manual recordkeeping system. The sum of money so kept in hand generally termed as. Hector company gathered the following reconciling information in preparing its march bank reconciliation.

Petty cash book meaning, cash book vs petty cash book. Petty cash book is an accounting book used for recording expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc. From the initiation of journal, the ledger account is prepared, with the help of. Petty cash accounts are managed through a series of journal entries. Petty cash book format example definition explanation. A triplethree column cash book to record cash, bank and purchase discount and sales discount. Keep a book of petty cash to record the purchases you make with your petty cash fund. At the end of the period, the petty cashier submits to the head cashier a statement of expenditures incurred by him. One way to control cash is for an organization to require that all payments be made by check. The petty cash book is a recordation of petty cash expenditures, sorted by date.

When a trader keeps a bank account it becomes necessary to record the. Petty cash is also the title of the general ledger current asset account that reports the amount of the companys petty cash. Double column cash book or two column cash book consists of two columns of amount on each side to record cash and bank transactions. The cash book is a chronological record of the receipts and payments transactions for a business. How to prepare petty cash bookpetty cash book in hindi. For this purpose, a cheque is given to the petty cashier for a definite sum of money by the company. In general, departments are strongly encouraged to use stanford purchasing cards or to request reimbursement through. Petty cash book is the accounting book that is used for the purpose of recording the petty cash expenditure i. Liquidity management in a cash book helps a company to determine the amount of cash that the company has at any given time, either at the end of a day or a week.

If the petty cash is not used all that often or if there is a larger amount in the box, you may never use all of the petty cash. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Always the voucher would show the amount, purpose, recipient, general ledger account number and date relating to the expenses. In simple petty cash book there is one column each for recording of receipt of cash from the. In almost all businesses, it is found necessary to keep small sums of ready money with thecashier or petty cashier for the purpose of meeting small expenses such as postage, telegrams, stationary and office sundries etc. Petty cash book is a type of cash book that is used to record minor regular expenditures such as office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc. What is the purpose of preparing a bank reconciliation. What is a cash book definition, explanation and types. Petty cash book is a formal book of recording petty expenses which are incurred in cash. In some cases, a description field is provided to help the petty cashier feed insufficient information about every purchase. Cash book contains cash transactions passing into and out of a business.

Petty cash book maintains records of all petty payments systematically. Define the purpose and use of a petty cash fund, and prepare. Petty cash book helps in making the main cash book more informative, clean and clear by including only major transactions. So, the book, wherein day to day petty expenses for a particular period of a business concern, are recorded in chronological order of dates is called petty cash book. What is the importance of petty cash in a business. Petty cash book explanation, format, example, ordinary. Petty cash accounting procedures reconciliation uses. These are expenses which are incurred day after day. Under this imprest system of petty cash book, the head cashier provides a fixed amount of money to the petty cashier in advance for meeting expenditure of a particular period. A three column cash book or treble column cash book is one in which there are three columns on each side debit and credit side. Columnar petty cash book and its preparation process. Controllimitkeep track of petty cash expenditure the cash remaining and the vouchers received should equal the imprest can help to reduce fraud or other suitable advantage.

Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively. Start your book by recording each and every expense and the purpose for which the fund was utilized. Meaning of petty cash book, its importance and advantages. Accounting can be done manually or made easier with bookkeeping software and employee expense. Besides maintaining a main or general cash book, many companies also maintain a small cash book known as petty cash book to record small day to day expenditures of the business petty cash book is a type of cash book that is used to record minor regular expenditures such as office teas, bus fares, fuel, newspapers, cleaning, pins, and causal labor etc. Objectives of trial balance concept and meaning of trial balance preparation of bank reconciliation. In most cases, the petty cash book is an actual ledger book. Petty cashier is a person, who maintains the petty cash book. Petty cash book is a ledger book, which is used to record petty cash expenses formally in chronological order, with the date. How to create petty cash account with excel youtube. Cash flow represents the cash receipts and cash disbursements as a result of business activity.

The statement of cash flows enables users of the financial statements to determine how well a companys income generates cash and to predict the potential of a. In this book, separate columns are provided for usual head of expenditure. Petty cash book is a type of cash book that is used to record minor regular expenditures such. Read this article to learn about the following types of cash book and its preparation, i. As we have discussed, one of the hardest assets to control within any organization is cash. A petty cash voucher is usually a small form that is used to document a disbursement payment from a petty cash fund. But, in every business a number of petty small payment like that for postage, carriage, stationery, entertainment, cartage, conveyance etc. The company maintains its own records from its perspective. Preparing a reconciliation since it is really important to make sure that the cash account and the bank account balances match, a company prepares bank reconciliations on a monthly basis.

In these cases, the clerk can replenish what has been taken out once a month in order to keep track of the expenditures and help with the accounting of the petty cash. When the account goes below a certain specified amount, the system is replenished. General cash book is subdivided in the single column, double column, and treble column cash book. The petty cash book is a useful control over petty cash expenditures, since it forces the petty cash clerk to formally record all cash inflows and cash outflows. Keep petty cash purchases small, for expenses like postage, parking meters or party supplies. Below is a breakdown of all columns and information contained in a petty cash book.

A cash book has simplified the entry cash transactions for accounting purpose to a great extent. The purpose of a bank reconciliation accountingtools. Required a state one advantage of the imprest system of petty cash. Petty cash book is the accounting book that is used for the purpose of recording. The following cash book examples provide an outline of the most common cash books. Petty cash book is maintained to record small expenses such as postage. There are two primary types of entries in the petty cash book, which are a debit to record cash received. Double column cash book explanation, format and examples. A petty cash book to record small day to day cash expenditures. A petty cash book is an accounting book used for recording expenses which are small and of little value, for example stamps, postage and handling, stationery. Petty cash book definition, types, format, examples imprest and. Petty cash vouchers are also referred to as petty cash receipts and can be purchased from office supply stores the petty cash voucher should provide space for the following.

Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. In most cases, the petty cash book is an actual ledger book, rather than a computer record. Petty cash book explanation, format, example, ordinary and imprest. Petty cash accounting involves establishing a petty cash policy, setting up a petty cash log, creating journal entries, and reconciling the petty cash account. A cash book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals. For this purpose, a petty cashier is appointed by the chief cashier. Tips keep the petty cash book and box or tin in a safe place, such as the accountants or managers office or cubicle. Importance and methods of preparation of trial bal. Do not leave it in a common area, such as the lunchroom or meeting area. Petty cash book helps in making the records of cash transactions uptodate because of division of labor in recording cash transactions.

The credit recorded in the journal to reimburse the petty cash fund is to. Of the two bank reconciliation formats used by a business entity, the more widely used form reconciles both the bank balance and the book balance to a correct cash balance true when preparing a bank reconciliation for the purpose of arriving at a correct cash balance, nsf checks are subtracted from the balance per books. Cash book, pass book, bank reconciliation statement dr. There might be a petty cash drawer or box in each department for. A bank reconciliation is used to compare your records to those of your bank, to see if there are any differences between these two sets of records for your cash transactions. Entries are needed to 1 establish the fund, 2 increase or decrease the balance of the fund. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. Rather than keeping cash acoount and bank account apart from each other, double column cash book enables us to keep these two accounts side by side.