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