Question

In every business, irrespective of its size,daily a large number of small payments, such as for postage, stationary, bus fare,taxi fare,cartage etc.have to be made.If these payments are made by the cashier and are recorded in the main cash book,the cashier will be overburdened with the work and the cash book will also become very bulky.Which system should be adopted to avoid this. Give the need of this system.(answer in about 100-150 words)

Answer 1

Petty Cash Book: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. For this purpose, a Petty Cashier is appointed by the Chief Cashier. The Chief Cashier advances a sum of money to the Petty Cashier to enable him to meet petty expenses for a fixed period. The Petty Cashier will record this amount on the Debit Side of the Petty Cash Book while the Chief Cashier will record the same amount on the Credit Side of the Main Cash Book.
 The fundamental difference between the Main Cash Book and the Petty Cash Book is that only petty expenses are recorded in the Petty Cash Book. No receipt (with the exception of money received from the Chief Cashier), however small it may be, is recorded in it. But in the main Cash Book all receipts (big and small) and large expenses are recorded.Thus we see that in large organizations both the books are essential, although the importance of the Petty Cash Book is somewhat less than the Main Cash Book.
Thus, the book in which small payments, which are not convenient to record in the Main Cash Book, (like postage, traveling expenses, purchase of stationery etc.) are recorded is called Petty Cash Book.System Of Petty Cash Accounting :1. Open System:Under this system the Petty Cashier at first receives from the Chief Cashier a fixed sum of money for meeting petty expenses. As soon as the said amount is spent, the Chief Cashier again pays the required sum to the Petty Cashier.2. Fixed Advance System:Under this system the Petty Cashier receives from the Chief Cashier a fixed Slim of money for a fixed period of time i.e. $200 per month. The Chief Cashier will pay $200 to the Petty Cashier every month irrespective of this that whether the Petty Cashier has spent the total sum or not.3. Imprest System :This system is generally followed by most of the business concerns. Under this system, the total petty expenses for a particular period are estimated and that amount is advanced by the Chief Cashier to the Petty Cashier. This amount is called Imprest Cash. On the expiry of the fixed period the Petty Cashier prepares a statement of his expenses and submits it to the Chief Cashier. This statement is known as Statement of Petty, Expenses. The Chief Cashier examines the statement and if he finds it correct, hands over the Petty Cashier an amount equal to the amount actually spent. This amount plus the amount lying unspent with the Petty Cashier will be equal to the Imprest Cash.In this way the Petty Cashier will start every time with an amount equal to Imprest Cash. In other words, the amount lying with the Petty Cashier will never exceed Imprest Cash. Generally a columnar Petty Cash Book is used in which different columns are provided for different petty expenses.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.Example:From the following particulars prepare a Petty Cash Book under Imprest System. 2005Jan. 1. Received from the Chief Cashier as imprest cash $400.Jan. 2. Paid Taxi hire $20.Jan. 3. Paid postage $28 and stationery $60.Jan. 4. Purchased stationery $48.Jan. 5. Paid telegram charges $28 and bus fare $4.Jan. 6. Bought postage stamps $96.Jan. 7. Paid $72 for repairs of typewriter.