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4: Sources, records and books of prime entry Part C The use of double entry and accounting systems
5.3 The petty cash book
A
petty cash book is a cash book for small payments.
Although the amounts involved are small, petty cash transactions still need to be recorded; otherwise the
cash float could be abused for personal expenses or even stolen.
There are usually more payments than receipts, and petty cash must be 'topped up' from time to time with
cash from the business bank account. A typical layout follows.
PETTY CASH BOOK
Receipts Date Narrative
Total
Milk Postage Travel Other
$
20X7
$ $ $ $ $
250
1
Sept
Bal
b/d
Milk
bill
25
25
Postage
stamps 5 5
Taxi
fare
10
10
Flowers for sick staff
15
15
Bal
c/d
195
250
250
25
5
10
15
5.4 Imprest system
Under what is called the
imprest system, the amount of money in petty cash is kept at an agreed sum or
'float' (say $250). This is called the
imprest amount. Expense items are recorded on vouchers as they
occur, so that at any time:
$
Cash still held in petty cash
195
Plus voucher payments (25+5+10+15)
55
Must equal the imprest amount
250
The total float is made up regularly (to $250, or whatever the imprest amount is) by means of a cash
payment from the bank account into petty cash. The amount of the 'top-up' into petty cash will be the total
of the voucher payments since the previous top-up.
The
imprest system makes a refund of the total paid out in a period.
The June 2008 exam included a question asking students to calculate the imprest amount. Many students
didn’t read the question carefully enough and so arrived at a wrong answer. Make sure that you follow the
example below, which demonstrates the correct technique.
5.5 Example: petty cash and the imprest system
DEF operates an imprest system for petty cash. During February 20X9, the following petty cash
transactions took place.
$
2.2.X9 Stamps
12.00
3.2.X9 Milk
25.00
8.2.X9 Taxi
fare
15.00
17.2.X9 Stamps
5.00
18.2.X9
Received from staff for photocopying
8.00
28.2.X9 Stationery
7.50
Key term
Key term
Exam focus
point
Part C The use of double entry and accounting systems
4: Sources, records and books of prime entry
67
The amount remaining in petty cash at the end of the month was $93.50. What is the imprest amount?
A $166.00
B $150.00
C $72.50
D $56.50
The solution is B.
$
Opening balance (imprest amount)
150.00
(balancing figure)
Add: amount received from staff
8.00
158.00
Less: expenditure
(64.50)
(12 + 25 + 15 + 5 + 7.50)
Cash in hand at end of month
93.50
Question
Books of prime entry
State which books of prime entry the following transactions would be entered into.
(a)
Your business pays A Brown (a supplier) $450.00.
(b)
You send D Smith (a customer) an invoice for $650.
(c)
Your accounts manager asks you for $12 urgently in order to buy some envelopes.
(d)
You receive an invoice from A Brown for $300.
(e)
You pay D Smith $500.
(f)
F Jones (a customer) returns goods to the value of $250.
(g)
You return goods to J Green to the value of $504.
(h)
F Jones pays you $500.
Answer
(a) Cash
book
(b)
Sales day book
(c) Petty
cash
book
(d)
Purchases
day
book
(e) Cash
book
(f)
Sales returns day book
(g)
Purchase returns day book
(h) Cash
book
68
4: Sources, records and books of prime entry Part C The use of double entry and accounting systems
Chapter Roundup
Business transactions are recorded on
source documents. Examples include
sales and purchase orders,
invoices and credit notes.
The
main
books of prime entry are as follows.
–
Sales day book
–
Purchase day book
–
Sales returns day book
–
Purchase returns day book
–
Journal (described in the next chapter)
– Cash
book
–
Petty cash book
Invoices and credit notes are recorded in
day books.
The
cash book may be a manual record or a computer file. It records all transactions that go through the
bank account.
Most businesses keep
petty cash on the premises which is topped up from the main bank account. Under
the
imprest system the petty cash is kept at an agreed sum so that each topping up is equal to the amount
paid out in the period.
Quick Quiz
1
Name four pieces of information normally shown on an invoice.
2
Which of the following is not a book of prime entry.
A Sales
invoice
B
Purchase day book
C
Sales day book
D Journal
3
Which of the following is a source document for petty cash.
A
Purchase
invoice
B Quotation
C Sales
invoice
D
Receipt and claim form
4
What is the purchase returns day book used to record?
A Supplier's
invoices
B Customer's
invoices
C
Details of goods returned to suppliers
D
Details of goods returned by customers
5
What is the difference between the cash book and the petty cash book?
6
Petty cash is controlled under an imprest system. The imprest amount is $100. During a period, payments
totalling $53 have been made. How much needs to be reimbursed at the end of
the period to restore petty
cash to the imprest account?
A $100
B $53
C $47
D
$50
7
All petty cash claims are automatically paid from petty cash.
Is this statement:
A True
B False