KWARA STATE COLLEGE OF EDUCATION

ILORIN KWARA STATE

COURSE CODE: BED 111

COURSE TITLE: ACCOUNTING
DEPARTMENT: BUSINESS EDUCATION
LEVEL: 100L
LECTURER NAME: MR. SHEU
GROUP 3
S/N NAMES DEPT
1. Muhammed Jamiu Alabi BED
2. Abdulrasaq Abdulbashit Alao BED
3. Abdulwaheed Sofiyat Damilola BED
4. Abdulraheem Aishat Oyindamola BED
5. Oladipo Inioluwa BED
6. Muritala Abeeb Ishola BED
7. Ajao Damilola Amidat BED
8. Abdullahi Marufat Kehinde BED
9. Akanji Esther BED
10. Soliu Abdulwasiu BED
11. Moshood Zainab Abike BED
12. Abdulkareem Moshood Olaitan BED
13. Abdulqodir Fatimoh .A. BED
14. Yunus Kafilat BED
15. Suleiman Habeebat Omotayo BED
QUESTION:

PETTY CASH BOOK

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What is a petty cash book?

First, let’s start with what is petty cash. It is a small amount of company funds
kept aside to make minor or not-so-significant purchases. For example, daily
travel tickets, office tea or coffee, sanitary products for the workspace,
stationary, etc.

Now a petty cash book is a record account or cash account to take care of any
expenses falling under the petty cash category. This means that instead of
making these purchases with cheques or cards, you use tangible cash and
coins.

You need to maintain a separate petty cash book from the actual accounting
books because if all these small transactions are counted in the main cash
book, your overall record will be overburdened.

A petty cash book is just a way to isolate these insignificant expenses from the
major business transactions.

How does a petty cash book work?

A petty cash book is not similar to your computer accounting record. Instead, it
is a ledger book used to note down all petty expenses.

Whenever there is any payment made for smaller office or business expenses,
that expense is recorded along with the amount and date in a petty cash book.
Every company has a petty cashier who is responsible for maintaining the petty
cash book.

Basically, the petty cashier receives money from the head accountant in the
form of a cheque. That cheque is then converted to cash in the bank and
recorded on the receipts side of the petty cash book.

Whenever an expense requirement is raised, the petty cashiers make a Petty

Cash Voucher (PCV). Before giving this PCV, the cashier records the particulars
of the expense, amount, date, and petty cash voucher number.

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PCV has to be approved by the responsible authority before the payment is
made.

Petty cash book format

This is what a general petty cash book looks like

As shown in the image, all expense categories have a specific column.

Individual expense amounts are recorded to get the total spending from the
given money and the total spending of particular categories.

What are the different types of petty cash books?

There are two standard types of petty cash books:

1. Columnar petty cash book

A columnar petty cash book has two sides — one for the debit entries and one
for the credit entries. This cash book style includes various columns to monitor
everyday transactions.

There are separate columns to track each transaction's specifics, date, and
debit or credit amount. The credit side has columns for all the cash expenses
set in chronological order.

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The money that comes from the head accountant is recorded on the debit side.
Every time an expense is made, it is recorded under its specific column.
Everything is tracked in a sequence.

In the end, there is a total money column on the credit side that tells you how
much the total expense was.

2. Analytical petty cash book

An analytical petty cash book is different from the previous one as it has on
single cash field on the debit side and a separate date field. The rest is as the
columnar petty cash book.

The funds that the head accountant gives are stored before the expenses
actually happen. Each petty cash expense has a separate column, and the
totals of each expense are calculated automatically.
The amount in the total column is the same as that in the specific expense
column.

What are the different systems for maintaining petty cash book?
There are three petty cash book maintenance systems:
1. Open system of petty cash
The open system of petty cash maintenance is simple. The petty cashier is
given a ballpark figure of money to handle the petty cash expenses. Once that
amount is exhausted, the petty chairs submit the expense record to the head
accountant.
After this, an approximate figure is given again, and the cycle repeats.

2. Fixed system of petty cash

Unlike the open system, here, the petty cashier is given a fixed amount of
money for a fixed amount of period. Once the period is over, the cashier
submits the petty cash book account to the head accountant.

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After this, that fixed amount is refunded, and the cycle continues. This is a
great way to keep your petty expenses under a budget. Having a fixed amount
limits anything extra to be purchased or paid for.
3. Imprest system of petty cash
In contrast to the previous method, the petty cash maintenance imprest
system is extremely popular. In this method, a total amount for petty cash
expenses is calculated for a period of time, and that amount is advanced as the
budget for that duration.
This amount is given as petty expense budget is called imprest cash.
Once the duration is over, a detailed report is submitted to the head
accountant, which means that the petty cash account is now back to zero.
Again the same process is repeated of calculation and advancing budget
amount.
What are the advantages of the imprest petty cash system?
The imprest system is not the most popular petty cash maintenance
system by chance. It helps to save an exorbitant amount of time for the head
accountant, or chief cashier.
They are responsible for looking over and working on the main cash books of
the business; spending time on petty expenses will just be a sheer waste of
time. Hence, the imprest system.
Along with this, another great benefit of the imprest petty cash system is no
cash misuse. The petty cashier is not allowed to store or hold back any residual
amount if left from the given budget.
All petty expenses must be made within that limit, and a detailed report must
be submitted to the head.
This induces transparency and eliminates any misuse. Plus, there cannot be
any miscalculation or extended amount allotted for petty expenses, as this is
supposed to be a small amount.
Moreover, the imprest petty cash method is a great way to help fresher’s or
junior accounting staff to learn the ways of the company and the tasks.

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Along with this, there is very minimal chance of any error, and even if there are
mistakes, they can be quickly resolved. This is because the head accountant
checks the petty cash book in a set period of time.
How is petty cash operated - Step by step guide
All company expenses, in general, are made through cheques or online fund
transfers. However, when it comes to petty expenses, instead of cheques, cash
is used. Here is how petty cash is operated:
Step 1: Funds creation
Your first step is to select and appoint a petty cashier. This cashier is
responsible for all activities related to petty cash funds and expenses. A certain
amount of funds is given to this employee in the form of a cheque.
This cheque is then converted to cash and stored to make payments. As the
petty cash fund is a fixed amount, there is no need for a new journal entry
every time the funds are refreshed.
Step 2: Making payments
Now that the petty cashier has the funds, day-to-day business expenses can be
made easily. Plus, all these will be made in compliance with the company
expense policies. So, if the business finance heads have put restrictions on
some category of expenses or specified a particular vendor for specific
expenses, all those rules will be duly followed.
All the expense receipts of petty cash vouchers have to be signed by the cashier
and the one receiving them. Petty cash funds decrease with every expense. This
means that the total spend must be equal to the total amount allotted in the
beginning. Only then will the petty cash book be approved by any auditor.

Step 3: Refunding
Once the previously allotted amount is exhausted, the petty cashier has to
submit a request for a refund.
For this, they are required to submit a petty cash expenditure statement and a
collection of all the receipts to the finance department of the company. All of

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the data is verified, and only then another cheque for the next time period is
issued.

How to post petty cash to the ledger?

Here is an example of how petty cash is posted in a ledger

The head accountant gives the petty cashier a cheque for 103000 INR; it
is recorded in the primary cash book. The credit side will show a total of
103000 INR to denote total payments.
Then all the above categories of payments are deducted from the journal. So
wages,stationary, followed by tea and refreshments and so on. Now the total
amount given willequal the total amount spent.
Advantages of petty cash book

The petty cash book system is a powerful way to keep track of daily
business expenses and fulfill requirements easily. This is because there is a
certain amount of money given to the responsible person, and from there on,
daily expenses are made on the go.
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 Plus, over every time period, you can revise the expenses and increase or
decrease the allotted budget. The chief accountant also evaluates the petty
cash book at regular intervals, so there is no chance of accounting errors or
mistakes passing through the system.
Moreover, one of the so many advantages of petty cash books is that
expense tracking with petty cash books becomes quick and easy.
This is because a fixed amount of money is allotted, and for every expense, a
PCV is issued; plus, the receipts must be signed by both the cashier and the
recipient.
Hence, everything is legitimately authorized and stored so that, in the
end, the allotted amount matches the spent amount.
Furthermore, you will not have to worry about reimbursements and the hassle
of the process.
As even the smallest expenses will be made through the money allotted
by the company, your employees will not have to spend from their pockets, and
hence reimbursement will not be in question.
This also reduces any chance of fraud because altering the spending amount or
spending more than required is not possible.
Disadvantages of petty cash book
Everything has its pros and cons. Not so significant, still petty cash books also
have a few disadvantages, which can be taken care of if you maintain them the
right way and with full vigilance. The first disadvantage is mismanagement and
theft.
As there are numerous small daily expenses, it can be cumbersome and
tedious to take care of all transactions and report them accurately.
This creates a small loophole for theft. It can be exhausting to find out if the
employees are spending the right amount and aren't over exaggerating.
Moreover, if the petty cash book is not monitored and rechecked regularly,
there are high chances of non-compliance and errors. This will, in turn, disrupt
the whole audit process.
Best practices for petty cash management

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1. Set clear spending guidelines and limits
This is a common but important one. Setting spending guidelines and limits.
To ensure fraud aversion and avoid overspending, putting a ceiling limit on
each petty expense category or type is essential.
So, for example, the petty expenses categories of your business are
refreshments, bustickets, office stationery, postage, and other miscellaneous
expenses.
Now according to the previous spend analysis time frame, you can evaluate and
decide on a fixed spend amount for each type. Plus, you also have to list down
rules for making these expenses, like process, receipt requirements, voucher
validity, etc.
2. Implement regular audits and surprise checks
Maintaining a petty cash book using any of the above-mentioned systems has
one crucial step — regular auditing and rechecking. The petty cashier has to
submit the expense record at regular intervals.
These regular audits will help to avoid any errors or loopholes in the
system. Along with the regular ones, the head accountant or financial manager
must sometimes call for surprise checks as well.
These surprise checks are important to check if any employee is getting away
with fraud and that everything is maintained according to the process.

3. Maintain proper documentation and receipts

This can be tedious but is extremely essential. Ask your employees and
the petty cashier to keep a record and store all the expense receipts.
Having paper documents and receipts for petty expenses might sound
negligible; however, with these, you can always tally up the amount that was
allotted and the expenses that were made.
You can be sure that no amount digits were altered in the book and that
all expenses were compliant with the spending policies.
4. Make centralized controls

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 Even though the petty cash book is maintained by a petty cashier, the
head accountant must look over it. Plus, all the expense policies for other
businesses and petty expenses should follow the same baseline.
This helps to maintain centralized control. The business will always have
stream lined expense management and error-free audits if everything is divided
from the top down with the same policies company-wide.

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