Petty Cash Book: Meaning MCQs Quiz | Class 9

About the Petty Cash Book

In any business, there are numerous small, frequent expenses like postage, stationery, taxi fares, and refreshments. Recording each of these transactions in the main cash book can be cumbersome and time-consuming. To manage these small payments efficiently, businesses maintain a separate cash book called the Petty Cash Book.

Key Concepts and Roles

1. What is a Petty Cash Book?

A Petty Cash Book is a book of prime entry used to record minor cash payments that are not convenient to record in the main cash book. It helps in controlling small expenditures and reduces the workload of the main cashier. The balance of the petty cash book represents an asset (cash) for the business.

2. The Role of the Petty Cashier

The person responsible for maintaining the Petty Cash Book and handling the petty cash fund is known as the petty cashier. Their primary duties include:

• Receiving a fixed amount (float) from the main cashier to start a period.
• Making small payments on behalf of the company.
• Obtaining proper vouchers or receipts for every payment made.
• Recording all transactions chronologically in the Petty Cash Book.
• Submitting the accounts to the main cashier for reimbursement at the end of the period.

3. The Imprest System of Petty Cash

The most popular method for managing petty cash is the Imprest System. Under this system:

1. A fixed sum of money, called the ‘imprest amount’ or ‘float’, is given to the petty cashier at the beginning of a period (e.g., a week or a month). This amount is estimated to be sufficient for the period’s small expenses.
2. The petty cashier makes all small payments out of this fund and keeps a record.
3. At the end of the period, the petty cashier submits the expense records to the main cashier.
4. The main cashier then reimburses the petty cashier with the exact amount of money spent. This brings the petty cash balance back to the original imprest amount.
5. For example, if the imprest is Rs. 5,000 and the petty cashier spends Rs. 3,200, the main cashier will give Rs. 3,200 to the petty cashier, restoring the fund to Rs. 5,000 for the next period.

Common Petty Cash Expenses

The Petty Cash Book often has multiple columns to analyze expenses under different heads. Here are some common examples:

Quick Revision Points

• The Petty Cash Book is used for recording small, routine payments.
• It operates on the Imprest System, where a fixed ‘float’ is maintained.
• The petty cashier is responsible for managing the fund and recording transactions.
• Payments must be supported by a petty cash voucher.
• The total of expense columns is posted to the respective ledger accounts, while the cash received is debited in the Petty Cash Account.
• The primary advantage is saving the main cashier’s time and providing better control over small expenses.

Practice Questions

Test your understanding with these additional questions:

1. What is the journal entry for establishing the petty cash fund for the first time?
2. Is the balance of the Petty Cash Book shown on the debit or credit side of the Trial Balance?
3. Why is a petty cash voucher considered an important source document?
4. If the imprest amount is Rs. 2,000 and expenses are Rs. 1,500, what is the reimbursement amount?
5. The process of checking the petty cashier’s records by the main cashier is a form of ______ control.