The person responsible for spending petty cash and recording it in a petty cash. Petty cash book explanation, format, example, ordinary and. As head cashier checks the accounts of previous month and gives advance for the. The main advantages of petty cash book publish your article. Define the purpose and use of a petty cash fund, and prepare. The check written to establish a petty cash fund in entered in the general journal by. Cash book also serves the purpose of book of original entry as well as ledger. Petty cash is the small cash reserves that businesses keep on the. Every time when the person who control the bank accountdisbursement to petty cash is able to have a closer internal check on the actual petty cash expenditure incurred. Imprest system of petty cash is a system where the petty cashier is given a lump sum in cash often called a float keeping in view the possible needs of the business to meet its petty expenses for a stated period, e. Petty cash accounting impressed petty cash system, detailed. Advantages, disadvantages, and the pex alternative. The imprest system is an accounting system for paying out and subsequently replenishing petty cash.
This is recorded as a separate account in the companys. Frauds involving cash are likely to be minimized and where committed are likely to be detected at an early stage. The petty cashier is given a sum of money in the beginning of the period. So, if you start the month with 100 in your petty cash float and spend 90 of that cash in the month, an amount of 90 will be then placed in your petty cash float to bring the balance of your petty cash float back to 100. It is a system of petty cash book where a person is given a fixed amount in the beginning of the period, the petty cashier submits the account of expenses keeping. In most cases, the petty cash book is an actual ledger book, rather than a computer record.
Using imprest, the petty cash of a company is kept at a constant rate. Nov 27, 2019 the imprest petty cash system is a method of accounting for petty cash expenses. As the petty cashier has to account for his expenses, before he can draw further sums, the petty cash. Concept and meaning of petty cash fund and system of petty cash. Apr 26, 2020 the petty cash book is a formal summarization of petty cash expenditures, sorted by date. The advantages of the imprest system are as follows.
Explain how the imprest system of petty cash book works. Cash 170 petty cash 170 to decrease the petty cash fund to. If you havent set aside money into petty cash imprest is lending money to. At the end of the period, the petty cashier submits the accounts of expenses keeping surplus amount himself. The imprest system requires that, at any point in time, the petty cash box contains cash and receipts that total the amount of the imprest balance. An imprest system of petty cash means that the general. Figurewhat is the advantage of using technology in the internal control system. Petty cashier is not allowed to keep idle cash with him if the float is found to be more than adequate. The analytical petty cash book and the imprest system. In a business operating this type of cash book, small cash payments are usually made out of petty cash. The most common way of accounting for petty cash expenditures is to use the imprest system. Petty cash book format example definition explanation. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments.
Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. A fixed balance is maintained in the account, and it is replenished routinely to maintain that. Overall, petty cash is a largely outdated and inefficient system. 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. In module 12, which covered the bank cash book, the advantages of paying all cash and cheques into the bank intact were evident. Setting up a petty cash system is pretty straightforward and can be accomplished in eight easy steps. While convenient for small purchases, it is not a realistic solution for larger expenses. Petty cash accounting impressed petty cash system, detailed accounting example. Start maintaining a general ledger in which to keep track of the petty cash and pettycash. Cash includes currency and coins, although most businesses do not keep much of this type of cash around. From the following particulars prepare a petty cash book under imprest system. This separation of cash books has many advantages of the firm like. The most common imprest system is the petty cash system.
Petty cash is a small reserve of cash kept onsite at a business location for incidental cash needs. E717 requirement 1 maintaining the petty cash account at its designated balance is the nature of an imprest system. Cash and bank transactions can be recorded in cash book. The system is a form of managing petty cash in a business. Which of the following explains the imprest system of. Notes on systems of petty cash fund grade 10 accountancy. Under it, the petty cashier is given certain amount of cash usually at the beginning of a month. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. An imprest is a cash account that a business uses to pay for small, routine expenses. During the period he makes payment out of this money. The exact amount of expenditure is reimbursed at intervals to maintain a fixed float c. It should also be kept in mind that petty cash book is not like the cash book. The imprest system of petty cash is used by most of the companies because of the following advantages.
The petty cash imprest system allows only the replenishment of the spend made. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced. The imprest system is designed to provide a rudimentary manual method for tracking petty cash balances and how cash is being used. The petty cash book accounts for the cash spent on this short term arising needs of the company and it is necessary for accountability for the expenditure on the. Second, a check is written for this amount, and the cash is given to the cashier in charge of the petty cash fund. Start maintaining a general ledger in which to keep track of the petty cash and petty cash. What is the difference between an imprest and nonimprest. It is possible to find out daily cash and bank balance. You need to develop a set of policies or procedures dictating the handling of cash in your business to avoid problems such as theft and misappropriation. During an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers. These small cash payments are recorded in a separate book, known as a petty cash book. Even where control accounts are maintained, a business must still keep a record of how much each customer owes them and. Which of the following explains the imprest system of operating petty cash.
E8 17 requirement 1 maintaining the petty cash account at its. 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. Daybooks doubleentry general ledger t accounts trial balance journal debits. 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. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. Concept and meaning of petty cash fund and system of petty. Jul, 2019 the imprest system is an accounting system for paying out and subsequently replenishing petty cash. Cash the cheque and create your first petty cash fund. An imprest system is used to run and manage a petty cash fund.
The most important part of a petty cash system is the documentation of each transaction. The petty cash book is a document in business used for recording misclenius expenditure this are the unplanned and shallow demands that may arise in the daily running of the business. Jul 16, 2019 the most important part of a petty cash system is the documentation of each transaction. Petty cash book 2019, imprest system of petty cash advantages. It keeps the systematic record of all cash and banking transactions of a. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced 2. The imprest system reduces the chances of misuse of cash because the float can be immediately reduced if it is found to. Apr 29, 2020 the advantages of the imprest system are as follows. What are the advantages of maintaining a petty cash book. The imprest system enables significant saving to be effected to post small. By keeping track of all petty cash transactions no matter how petty you have records to back up deductions for those small business expenses. What are the main advantages of maintaining cash book. Also included as a part of cash are the balances kept at banking and financial institutions. Most cash should be deposited right away in the bank, but a small amount can be kept on hand in a petty cash account earmarked for minor.
Petty cash implies a small amount of cash in hand, with the petty cashier, who uses the amount to pay for petty cash. The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. The petty cashier is responsible for updating and maintaining the petty cash book. The main advantages of imprest system of petty cash are as follows. Here are some advantages and disadvantages to using petty cash as an. The imprest petty cash system is a method of accounting for petty cash expenses. What are the advantages of using the imprest system. The bigger the company, the harder it is to track outgoing petty cash, change and receipts. Imprest system of petty cash it is more popular system of petty cash. Petty cash book maintains records of all petty payments systematically. First, management has to estimate how many small purchases it will make and much money it will need for these purchases. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established.
All expenditure out of the petty cash must be properly authorised. Uses of petty cash book its a cash book used to enter daily petty expenses. Imprest system of petty cash fund the world impress means advance amount which is personal to certain person to make petty expenses. Petty cash is a small reserve of used for transactions and expenditures where it doesnt make sense to write cheques. At all times, the balance in the petty cash box should be equal to the cash in. The imprest system is a form of financial accounting system. Petty cash and the imprest cash float system college. What is the petty cash imprest system, and why would a. 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. Meaning of petty cash book, its importance and advantages. Oct 26, 2012 petty cash accounting impressed petty cash system, detailed accounting example. This makes the entire petty cash system susceptible to abuse. The imprest system reduces the chances of misuse of cash because the float can be immediately reduced if it is found to be more than adequate for the agreed period. E817 requirement 1 maintaining the petty cash account at its designated balance is the nature of an imprest system.
The advantages of using the imprest system are versatility, accountability, practicality, limitation of theft, ease of use and limitation of expenditure. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. These balances include savings and checking accounts. Create a petty cash account and write out a cheque for the appropriate amount. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a set amount. 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 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. How the imprest system of petty cash book works your business. Thus, the book is part of a manual record keeping system. Many expenses of small nature are recorded in petty cash book. At end the firm reimburses him the amount paid by him so that the balance of cash with him. Jun 14, 2008 an imprest system of petty cash means that the general ledger account petty cash will remain dormant at a set amount. Documenting transactions is the way a business documents business expenses for tax purposes. Petty cash book is a type of cash book, which use to record small amount of receipts and payment.
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