Accounting – The Importance of a Petty Cash Book

The Importance of a Petty Cash Book

A petty cash book is created to facilitate small payments in a business or organization. It caters for items such as postage and stamps, bus fare and stationery.  It is meant to meet the day-to-day expenses and is entrusted in the hands of a petty cashier. The petty cashier can choose to operate it either as impress systems or as ordinary systems of the cash book that is later used by accounting firm in Johor Bahru to prepare the accounts. 

When used as ordinary systems of petty cash

In this case, the petty cashier receives a certain amount of money for meeting small expenses in the office. After they spend the whole or part of the amount, they submit the amount incurred on expenses and the surplus (Also see Critical Areas Business Owners Should Look At). They will then receive another amount similar to what they had received so that they can use it to pay for small expenses.

Analytically petty cash book

The analytical petty cash book has a separate column for each item on the credit side while the debit side (Also see overview of Double Entry Accounting) contain one column for all the cash received from the cashier. If there are many transactions, the petty cashier may only choose the most common expenses to be featured in different columns while the rest can be featured as either miscellaneous or sundry expenses. This facilitate the check by supervisor as part of the internal control system (Also see What is Test of Control) of an organisation.

When used as an impress system

The term impress is used in accounting to refer to the amount given to a certain person so that it can be used to meet petty expenses. In this case, the cashier receives a stated amount of money at the beginning of the period. After incurring expenses, the petty cashier submits the account of expenses incurred and keeps the surplus amount. They receive an amount equivalent to what they have spent from the petty cashier. Consequently, the petty cashier begins the next period with the same amount of float. Under the system, the petty cashier receives a reimbursement.  Thus, he receives the same amount of float at the start of each period.

Importance of a petty cash system

• It records all the petty expenses incurred in the organization
• It avoids the inconvenience of using checks to make small payments
• It assists in updating cash transaction records and allows division of labour in an organization.
• It provides information on small payments made to meet certain expenses
• It can be used to control petty expenses since it allows for comparison of the petty expenses incurred between two periods.
• Small businesses such as restaurants find petty cash log important because it avails funds that can be used to meet unpredictable shortfalls.