The petty cash float

The petty cashier looks after a small float such as £50 or £100 in notes and coins. It is used to pay for miscellaneous small office expenses such as staff travel and hotel accommodation, window cleaning, or small office items needed quickly. The petty cashier keeps account of all such transactions in the petty cash book.

Using the imprest system

From time to time the cashier will reimburse the petty cashier for the amount he has spent on his firm’s behalf: his float is replenished to the original amount. This is called an imprest system, and the original amount of the float e.g. £50 is called the imprest amount.

Without a petty cash book, cash expenditure on lots of very small items would mean making entries in the ledger, for each item of expense. But by using the petty cash book, such items can be analysed into useful columns which can be totalled up monthly, and just these totals—not all the details—posted to the ledger.

Keeping the petty cash secure

The petty cashier is personally responsible for the petty cash, so he/she should:

• keep it locked away
• limit the number of people who have access, preferably to one person
• reconcile cash to records regularly (petty cash vouchers + receipts + cash = imprest value).

A helpful analysis

Even if the firm is small, and the cashier keeps the petty cash book himself, it is still a very useful means of analysing and totalling office expenditure. Otherwise all such expenditure would have to be entered in the cash book and later posted individually to the ledger. The cash book, remember, has an analysis facility for double entry book-keeping. The analysis columns of the petty cash book act as a book of prime entry for the expenses in which the petty cashier becomes involved. From here they are later posted to the expense accounts in the ledger.

Dual status of the petty cash book

The petty cash book, like the cash book, usually has a dual status: it is both a book of prime entry and part of the ledger. However, some firms treat it purely as a book of prime entry, to record transactions involving notes and coins. They then write up a ‘petty cash account’ in their general ledger. Here, however, we will treat it as part of the ledger. Unless told otherwise, you should do the same.

Like the other books of prime entry, such as the day books, the petty cash book usually has a few helpful analysis columns. But since it is also part of the ledger, it also needs to have both debit and credit columns.

1. Suppose A. Frazer has only just started up in business and intends to use an imprest system for his petty cash transactions. (The firm’s estimated turnover is below the VAT threshold so it does not intend to register as taxable. There is, therefore, no need to account for VAT in the petty cash book.) The transactions during its first month are as follows. Write up his petty cash book for the month.

2. A. Frazer is a Taxable firm for VAT purposes; this means that the VAT aspects of its transactions have to be recorded in its books. Suppose the firm’s Petty Cash transactions for the month of December 200X are as follows. Write up his petty cash book for the month, using the imprest system. Assume, for the purpose of this exercise, that there is currently only one VAT rate in operation and that is 10%.

Opening balance £100.00, Dec 10 paid travelling expenses £20.00, Dec 15 refunded petrol expenses £10.00 and paid cleaner £16.00, Dec 21 bought parcel tape £1.85, Dec 31 received cheque from cashier to replenish the fund to the imprest figure of £100.00.