The cash book can be maintained properly as petty transactions are maintained. To save money, some offer their customers a discount for paying with cash. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced 2. Since there are no sufficient documents for tracking the petty cash sometimes, petty cash may result in accounting errors.
Also see formula of gross margin ratio method with financial analysis, balance sheet and income statement analysis tutorials for free download on. This makes the entire petty cash system susceptible to abuse. The is only one money column on the debit side and all sum received from time to time by the petty cashier from the chief cashier are entered in it. It is a reality that there is always a good and bad side to everything. A petty cash book is generally maintained on a columnar basis a separate column being allotted for each type of expenditure. Petty cash would be susceptible to a accounting errors because it has no sufficient documents for tracking the cash. In this book, separate columns are provided for usual head of expenditure. The advantages of using a petty cash book are as follows. Overall, petty cash is a largely outdated and inefficient system. Due to lack of control, petty cash are always in a chance of misappropriating of the fund. Disadvantages of maintaining petty cash book there are several disadvantages of maintaining a petty cashbook which are as follows. The book in which all cash transactions either cash is received or paid are primarily recorded according to dates, is called cash book. Is there a better way to solve the small expenditure dilemma. 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.
The disadvantages of common stock financing to the corporation. What are the advantages of using the imprest system. Petty cash is a comprehensible and common method of paying for business operating cost. What is petty cash book write the advantages of petty cash. Jul 16, 2019 petty cash describes small transactions of a business. Petty cash describes small transactions of a business. Petty cash, being a liquid asset, is prone to misappropriation. As head cashier checks the accounts of previous month and gives advance for the.
The bigger the company, the harder it is to track outgoing petty cash, change and receipts. Petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check. Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. Sep 19, 2019 petty cash or the petty cash fund is a small amount of cash on hand used for paying expenses too small to merit writing a check. Advantages, disadvantages, and the pex alternative. The pages of the cash book are vertically divided into two equal parts. At the end of a period,petty cash book is audited by the main cashier, so frauds and errors are less probable. More and more cashonly businesses are weighing the pros and cons of their payment system. However, in an everchanging marketplace, consumers should consider the pros and cons of paying with cash.
Petty cash book is an accounting book used for recording expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc. A petty cash book gives management a record of all the little. Using imprest, the petty cash of a company is kept at a constant rate. Petty cash book maintains records of all petty payments systematically. Advantages and disadvantages of single entry system. Why petty cash is important for your business finances. Some customers prefer to pay with a check instead of carrying cash or using a credit card. Fixed amount is paid to the petty cashier along with the imprest system. Jul 16, 2019 petty cash, also known as cash on hand, refers to small amounts of cash kept on hand in a business. What are the advantages of maintaining a petty cash book. Advantages and disadvantages of analytical petty cash book qs.
Cash book also serves the purpose of book of original entry as well as ledger. A petty cashier makes a detailed analysis of petty payments and records under suitable heads, i. The disadvantage of a petty cash book is that it contains so many small entries. Subtract the total onhand cash from the opening balance. However for a merchant, like cash, the beauty of checks is that it costs nothing to accept. To set up and maintain a petty cash fund, you must fund it with monies from your business. When petty cash is easy to get to employees, it is a suitable way to pay for little purchases. Without proper controls, the businesss petty cash account becomes vulnerable. Petty cash book can be expressed as a formal summarization of the petty cash expenditures which refers to the daytoday normal.
The advantages of using the imprest system are versatility, accountability, practicality, limitation of theft, ease of use and limitation of expenditure. Small businesses tend to use the cash basis accounting method, which records transactions when the cash actually changes hands rather than upon completion of a service or delivery of a product accrual basis. Main cashier can focus on other major financial transactions of the business. Petty cash book 2020, imprest system of petty cash advantages by caknowledge team last updated apr 29, 2020 0 petty cash book. In other words, we can say that if we add a bank column to both sides of a single column cash book, it would become a double column cash book. Advantages of the imprest system of keeping petty cash the petty cash book is used to record small payments. Cash and bank transactions can be recorded in cash book. Advantages and disadvantages of different payment types. Advantages and disadvantages of analytical petty cash book. No matter how useful petty cash funds may be in every business, there are also some downsides to using it.
An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. Petty cash book format example definition explanation. Petty cash should be handled with care to avoid misappropriation. What are the advantages of the petty cash book answers.
Your businesss petty cash system is susceptible to accounting errors because. Petty cash book explanation, format, example, ordinary and. There are numerous small payments on account of expenses like stationery, cartage, coolie hire, refreshments to guests etc. If a company is big in size, it becomes quite a tedious task for the. The credit side consists of several analysis columns. Accounting students can take help from video lectures, handouts, helping materials, assignments solution, online quizzes, gdb, past papers, books and solved problems. It has only one money column on each of the debit and credit sides of the cash book. The petty cash book is to enter how the cash available for daily expenses are spent for example milk, tea, taxi charges and. Petty cash book 2019, imprest system of petty cash advantages. The double column cash book also known as two column cash book has two money columns on both debit and credit sides one to record cash transactions and one to record bank transactions. For this purpose, a petty cashier is appointed by the chief cashier.
Definition and explanation of cash book format, advantages. An expense that classifies as a small amount or not differs from company to company. Here are some advantages and disadvantages to using petty cash as an expense. Petty cash book is the accounting book that is used for the purpose of recording the petty cash expenditure i. Count the cash currently in the petty cash box or drawer. Petty cash is mostly an outofdate and incompetent method and one that businesses should think again using. Some customers prefer to pay with a check instead of carrying cash or using a. Meaning of petty cash book, its importance and advantages.
Many businesses keep a petty cash fund to pay for small daily business expenditures such as office supplies. Single column cash book records only cash receipts and payments. 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. The advantages of petty cash system enumerated are as follows. Now that being said, this payment method does come with drawbacks.
Additionally, if a specific research project requires the use of cash as a protocol treatment of the study, then. These are expenses which are incurred day after day. An imprest system of petty cash is used for more control over cash in hand. In big business firms, all payments are made by cheques and all receipts are banked. Sep 26, 2016 however for a merchant, like cash, the beauty of checks is that it costs nothing to accept. What is the main use of a petty cash book in accounting. Below are the main advantages of using cash accounting for financial reporting and tax purposes. Advantages of using petty cash disadvantages of using petty cash highlights of petty cash fund policy. Recording in petty cash book saves time and efforts of the chief cashier. Petty cash book supplies information regarding petty payments made on different heads more easily and quickly. Petty cash book relieves the main cashier because it is prepared by the petty cashier. The main advantages of petty cash book publish your article. It makes records of all petty expenses are payments systematically. Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively.
Petty cash book is maintained by the petty cashier. Such payments include postage, reimbursement to employees for small purchases of office supplies and numerous similar items. Petty cash book can be maintained either in a simple or in analytical way. Columnar petty cash book and its preparation process. All the cash receipts are entered on the debit side and the cash payments on the credit side. Apr 29, 2020 petty cash book 2020, imprest system of petty cash advantages by caknowledge team last updated apr 29, 2020 0 petty cash book. The system is a form of managing petty cash in a business. Dec 05, 2019 10 advantages and disadvantages of bank reconciliation dec 5, 2019 jul 15, 2018 by editor in chief in bank reconciliation, the bank statement balance is reconciled, with the book bank account balance in the clients books of accounts, resulting to the tallying of the two balances, where the calculated adjusted bank balance should be equal to. Write the normal petty cash figure on a sheet of paper. Double column cash book explanation, format, example. The term petty is used because it is small petite amounts of cash or cashlike transactions. The advantages of analytical petty cash book are given below. Nov 02, 2019 the regular check of the petty cash book creates a sense of responsibility in the petty cashier. Cash also saves vendors money, and some pass the savings on to you through cash discounts.
Disadvantages to a petty cash system overall, petty cash is a largely outdated and inefficient system. 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. It is possible to find out daily cash and bank balance. The regular check of the petty cash book creates a sense of responsibility in the petty cashier. There might be a petty cash drawer or box in each department for. A petty cash book is used to maintain a record of expenses incurred of a small amount.
Petty cashier is a person, who maintains the petty cash book. Issuing common stock extends voting rights and perhaps even control, to new stockholders gives new stockholders the right to a percentage of profits rather than to a fixed payment in the case of creditors. The term petty is used because it is small petite amounts of cash or cash like transactions. Advantages and disadvantages of analytical petty cash book simple method. Retailers pay a fee every time they swipe a credit card. To pay for small purchases which require cash, such as food for the office lunch or coffee supplies, or for parking. Advantages and disadvantages to using petty cash in your business. University policythe purpose of a petty cash fund is to provide cash to business units sufficient to cover minor expenditures. What are the advantages of a imprest system for petty cash. Frauds involving cash are likely to be minimized and where committed are likely to be detected at an early stage. Disadvantages of using petty cash continuous replenishment of petty cash funds based on study needs coordination of cash on hand with volume of payments to participants, i. So, the book, wherein day to day petty expenses for a particular period of a business concern, are recorded in chronological order of dates is called petty cash book. Payments in cash of small amounts like traveling expenses, postage, carriage etc. Wherever possible, local units should use the pcard instead of petty cash.
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, also known as cash on hand, refers to small amounts of cash kept on hand in a business. What is the importance of petty cash in a business. Recording in a petty cash book does not require formal knowledge of accounting principles and techniques. While suitable for little purchases, petty cash is not. In an imprest system, the amount in hand plus the amount of all receipts should be equal to petty cash balance. The petty cashier of john and james company paid cash for the following expenditures during march 2018. The simplest way to do this is to write a check to petty cash using your business checking account. Cash accounting requires less staff and financial resources. In the realm of accounting, there are two principle methods of managing your financials. You can avoid such accounting errors by using cash vouchers to record every transaction. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced.
People who use cash spend less than those who use credit and debit cards, according to the science daily website. Recording transactions on the basis of vouchers and. The discount cash customers get is less than the cost of the credit card processing fee, so retailers still come out ahead. Many expenses of small nature are recorded in petty cash book. Total the receipts that detail petty cash expenditures. A cash book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals. 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 is a cash book used to enter all small or petty expenses obtained. What are the main advantages of maintaining cash book. Much advancement in technology, particularly on the internet, deters or even flat out prohibits cash payments. How the imprest system of petty cash book works your business.
The petty cash book will be maintained by a separate cashier known as petty cashier in the accounting field. While convenient for small purchases, it is not a realistic solution for larger expenses. It is both a book of original entry as well as a book of final entry. The petty cash book is checked by the chief cashier at the end. The chief cashier is relieved from the cumbersome work of petty cash disbursement. The imprest system master principles of accounts poa. Petty isnt so small anymore, so think of it as small amounts that you might not think about tracking. Cash accounting can also be costeffective, especially if your business structure is a sole proprietorship or partnership. Petty cash book is a manual system of recording expenditure and is often prone to errors and sometimes becomes a cumbersome task to keep the books and record each transaction, especially in a big company. 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. In addition, using cash simplifies budgeting, since you can just look at the cash in your hand to see whats left instead of looking at an online registry or calling your card company for a balance.
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