Meaning of Petty Cash Book

A petty cash book is a special type of cash book that is used to record small or minor business payments that occur frequently and are not convenient to pay by cheque or record in the main cash book.

These include expenses such as postage stamps, envelopes, transport fares, newspapers, refreshments, and other small daily expenses.

It is a book of original entry, and sometimes serves as a ledger account for petty cash transactions.

Businesses keep petty cash books for the following reasons:

1. It would be impractical to issue a cheque for every small expense.


2. It helps you to record and control numerous small cash payments.


3. It enables management to know the total amount spent on minor expenses over a period.


4. It strengthens internal control by having a separate record for small cash transactions.


5. It reduces the workload on the main cashier or accountant.

There are two main types of petty cash books:

1. Simple Petty Cash Book – This type has one total payment column on the credit side. It does not have separate columns for different expense types.


2. Analytical (or Columnar) Petty Cash Book – This has separate columns for various petty expenses such as transport, postage, stationery, and others. Each payment is recorded in the total column and extended to the appropriate expense column.

A typical petty cash book has the following columns:

1. Date – When the transaction occurred.


2. Particulars or Description – Details of what the money was spent on.


3. Voucher Number – The number of the petty cash voucher used for the payment.


4. Total Payments – The total amount of each petty payment.


5. Expense Columns – Separate columns for each type of expense (for example, postage, stationery, transport).


6. Debit Side – Where the amount of cash received or replenished is recorded.


7. Credit Side – Where petty cash payments are entered.

1. When the petty cashier receives cash from the main cashier, it is recorded on the debit side of the petty cash book.


2. When payments are made for petty expenses, they are recorded on the credit side in the total column and extended into the correct expense columns.


3. At the end of the period, totals are calculated for each expense column.


4. The petty cashier accounts for the total spent and the remaining cash balance before the fund is replenished.

The imprest system is the most common method of controlling petty cash. Under this system:

1. A fixed amount of money called an imprest or float is given to the petty cashier at the beginning of a period (for example, a week or a month).


2. The petty cashier uses this money to pay for minor expenses and keeps receipts for each payment.


3. At the end of the period, the petty cashier submits a summary of all payments made.


4. The total spent is then reimbursed so that the petty cash balance returns to the original imprest amount.

---

Example: If the imprest is ₦5,000 and ₦3,200 is spent, then ₦3,200 will be reimbursed to bring the fund back to ₦5,000.

Example of a Petty Cash Book (Analytical Type)

At the end of the period, ₦650 will be reimbursed so that the petty cash balance returns to ₦5,000.

---

Example 2: Analytical Petty Cash Book

Question:
A petty cashier is given ₦4,000 as an imprest on June 1. The following petty payments were made during the first week of June:

Prepare an Analytical Petty Cash Book for the above transactions and balance it at the end of the week.

Solution:

Balance:
Amount spent = ₦1,200
Remaining cash in hand = ₦4,000 − ₦1,200 = ₦2,800
Reimbursement required: ₦1,200 to bring the imprest back to ₦4,000.

---

Example 3: Simple Petty Cash Book (Without Expense Columns)

Question:
On July 1, a petty cashier receives ₦3,000 as petty cash imprest. During the first four days of July, the following expenses were made:

Solution:

Balance at hand: ₦2,250
Reimbursement required: ₦750
After reimbursement, the petty cash balance will return to the original imprest of ₦3,000.

---

1. Stationery (pens, paper, envelopes)


2. Postage (stamps, delivery charges)


3. Transport or travelling expenses


4. Refreshments


5. Cleaning materials


6. Minor repairs


7. Newspapers and magazines

The petty cashier is the person responsible for handling petty cash. Duties include:

1. Keeping the petty cash book up to date.


2. Making small authorized payments.


3. Keeping vouchers and receipts for all payments.


4. Reporting and balancing the petty cash at the end of the period.


5. Requesting reimbursement under the imprest system.

Petty Cash Book	Main Cash Book
Records small, routine payments.	Records all major cash and bank transactions.
Maintained by the petty cashier.	Maintained by the main cashier or accountant.
Often follows the imprest system.	Does not use an imprest system.
Has expense columns for minor items.	Has bank and cash columns for larger payments.

1. Saves time by recording small payments separately.


2. Helps you to control minor business expenses.


3. Reduces the workload on the main cashier.


4. Provides clear information about how small cash is spent.


5. Makes checking and auditing easier.


6. Prevents misuse or loss of cash.

---

Summary

1. The petty cash book records small and frequent cash payments.


2. It is managed by a petty cashier and often operates under the imprest system.


3. It helps in proper control of small expenses and supports the accuracy of financial records.


4. Two main types exist: simple and analytical petty cash books.


5. It is an important tool for successful business record keeping and internal control.

---

Revision Questions

1. What is a petty cash book?


2. List five examples of expenses recorded in the petty cash book.


3. Differentiate between a simple and analytical petty cash book.


4. Explain the imprest system of petty cash.


5. State four advantages of keeping a petty cash book.


6. Mention three duties of a petty cashier.


7. Give two differences between the petty cash book and the main cash book.


8. Prepare a simple petty cash book with given transactions.