FORM 2 BOOK KEEPING TOPIC 2:PETTY CASH AND IMPREST SYSEM
Petty Cash and Imprest System (Columnal Petty Cash Book)
Operation of the Petty Cash Book
Determine the operation of the petty cash Book
Petty Cash Book:
Petty cash book is a kind of cash book which records large number of small payments such as conveyance, cartage, postage, telegrams and other expenses under the imprest system. These expenses are repetitive in nature.
The procedure becomes cumbersome if all small and repetitive payments are handled by the main cashier and are recorded in the main cash book.
The cash book may become very bulky and the cashier may be overburdened. Applying the rule of ‘management by exception’ the main cashier should not be disturbed for small and petty items.
Big organizations normally appoint one or more cashier known as ‘Petty Cashier’ and assign the handling of petty expenses. Sometimes the work of handling small and petty expenses is assigned to an existing employee who in addition to his normal duties maintains a separate cash book to record these petty and small cash transactions.
For this purpose petty cash book is to be maintained by such employee. The petty cashier so appointed for recording the small and petty expenses works on the imprest system.
Difference between Cash Overage and Shortage
Distinguish between cash overage and shortage
Situation in which the physical amount of cash on hand differs from the book recorded amount of cash. When a business is involved with over-the-counter cash receipts, occasional errors may occur in making change.
The cash shortage or overage is revealed when the physical cash count at the end of the day does not agree with the cash register tape. Assuming that the count is Sh.60000 and the cash register reading shows Sh.62000, the cash shortage and overage account would be charged for 2000. It is shown in the income statement.
Meaning and Implication of the Imprest System and Petty Cash Vouchers
Explain the meaning and application of the imprest system and petty cash vouchers
Under the impress system, a fixed amount say Rs. 5,000 is given to the petty cashier for incurring small and petty expenses. This amount is called imprest money. The petty cashier makes all the payments for which he is authorized out of the imprest amount. After a specific period or as soon as he exhausts the full imprest amount, whichever is earlier, he gets reimbursement for the actual amount spent by him from the main cashier.
Thus at the beginning of the next period he once again has the full imprest amount. Keeping in view the quantum of amount involved and frequency of transactions, reimbursement of amount is made on a weekly, fortnightly, monthly basis. Sometimes the petty cash system is operated through the main cash book and in that case petty cash book is not maintained independently.
Reduces the labour
Petty cash book is based on the division of labour and works on imprest system; hence, it reduces the work and labour of main cashier.
Controls irregular expenses
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. Based on this principle, a petty cashier is appointed who can control the irregular expenses. In the absence of petty cashier, it is very difficult to watch and control the necessities of incurring any expenses.
Main cash book does not become over bulky
Petty cash book helps to keep the main cash book in a compact form because numerous entries for small and petty items are recorded in the petty cash book itself.
Quick payment possible
In petty cash book, payments for petty items are recorded. Though they are small, yet they are essential. Sometimes they are so urgent that they cannot wait for approval of the higher authority. In that case quick payment is required and this can be made by the petty cashier.
Sorting out Different Petty Expenditures and the Technique of Recording them in the Petty Cash Book and Journals
Sort out different petty expenditures and the technique of recording them in the petty cash book and journals
Types of Petty Cash Books:
There are the two methods of preparing petty cash book: