B1: 3.07 The Petty Cash Book

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What is petty cash?

Petty cash is a small amount of cash that a business holds separately from any other cash held in the business. It is used to pay for minor expenses that businesses occasionally incur such as:

  • Tea, coffee, milk for the office
  • Minor charitable donations
  • Reimbursement of travel costs
  • Costs of postage and stationery
  • and so on…

Who looks after the petty cash?

The official title of someone who looks after petty cash is Petty Cashier” although in practice this title is rarely used. The role is usually carried out by a responsible individual within the business, perhaps a junior member of the accounting team or a manager’s personal assistant. Their responsibilities will include ensuring that:

  • Petty cash is held securely
  • Payments from petty cash are properly authorised
  • The associated paperwork (petty cash slips and receipts) are received and completed correctly
  • The Petty Cash Book (a record of petty cash receipts and payments) is written up
  • Requesting additional petty cash from the Cashier (i.e. the person who manages the business’ current bank account)
  • Providing information about petty cash receipts and payments to the business’ accountants

Petty cash slips

When a petty cashier receives a request for payment they will ask for a completed petty cash slip. This form provides information about the payment – what and how much it is for, as well as details of who is claiming the money and who has authorised payment. The completed petty cash slip, together with any associated till receipts or invoices will then be stored by the petty cashier.

Example of a petty cash slip

Requisitions of petty cash

Each period (e.g. each month), the Petty Cashier will ask the business’ Cashier for additional cash so that they don’t run out of petty cash – this is known as a petty cash requisition. But how much should be requested?

The Imprest System

The most common method of petty cash management is known as the Imprest System which works as follows:

A business will decide upon an Imprest amount (also known as a petty cash float). This is the maximum amount of petty cash that should be held at any one time. The petty cashier will pay petty cash expenses from this Imprest amount and at the end of an accounting period (e.g. the end of the month) the petty cashier will requisition sufficient money to take the petty cash balance back up to the Imprest amount.

The advantage of the Imprest system is that it is easy to understand and it enables the petty cash to be checked at any time as the amount of petty cash held plus the totals of all the petty cash slips held for the accounting period should add up to the Imprest amount.

The Petty Cash Book (“PCB”)

The petty cash book is a book of prime entry used to record receipts and payments of petty cash. It is similar in nature and layout to the business’ Cash Book.

Example of a petty cash book without opening and closing balances

As receipts of petty cash almost always come from the business’ current bank account it is common for the receipts side of the PCB to just have one column for receipts as shown in the above example.

Another common layout uses the same “Date”, “Details” and “Reference” columns for use by both receipts and payments. An example of this layout is shown below:

Alternative layout for the petty cash book

Like the Cash Book, the petty cash book can also be used to record the opening and closing amounts of petty cash held. The process for completing the PCB with balances is identical to the way that it was done for the Cash Book and an example is shown below.

Example of a petty cash book which includes petty cash balances

When a PCB includes balances we often describe the receipts side as the Debit side of the book and the payments side as the Credit side of the book. In the PCB the balance brought down will always be recorded on the receipts side and the balance carried down will always be recorded on the payments side (since it is impossible to have negative petty cash).