Petty Cash Fund and Its Recording

Different expenses have to be incurred by an office. Most of such expenses are paid through cheque. But some small amount expenses cannot be paid by cheque. This includes expenses like postage, taxi fare, envelopes, tea for guests etc. These expenses have a very small amount and cannot be paid by issuing a cheque. To solve such problems, offices establish a petty cash fund. Petty cash fund helps in paying, managing and controlling such petty expenses. The size of the petty cash fund depends upon the system, practice and preference of the office. The person operating such a fund is called Petty Cashier.

The establishment of such a petty cash fund saves the time of the Main Cashier. The Main Cashier can dedicate his/her saved time towards payment and management of bigger expenses. The practice of petty cash funds reduces the burden of small expenses documents in the expenses file. Under petty cash fund, all expenses bills are considered at a time and reimbursed to make its limit unchanged after every specified period (mostly monthly). This makes the handling of petty expenses easy, fast and through one window.

Benefits/Advantages of Petty Cash Fund

There are different benefits of maintaining and operating petty cash funds. Such benefits or advantages of petty cash fund has been outlined as under:

It saves recording time as all petty expenses are recorded at one place in a Petty Cash Book
It makes the payment of petty expenses easy and fast
It reduces unnecessary paper works for petty expenses
It minimizes the size of the main cash book
The main cash book is not filled with records of petty expenses
Easy to understand, implement and practice
No special or highly competent skill is required to operate such a fund

Systems of Petty Cash Fund

There are mainly two systems in practice to establish and operate petty cash funds. These systems have been explained below:

Imprest System:

This is the most commonly used system of petty cash funds. In this system, the main cashier provides the petty cash fund amount to the petty cashier. The petty cashier makes all the payments of petty expenses. After a specific period (mostly monthly), the petty cashier submits all the expenses details to the main cashier. The petty cashier then takes the reimbursement for the expenses made. By doing so, the full limit of the petty cash fund is maintained for the next period. This continues throughout the year and at the end of the year, the petty cash fund is closed. After closing it for the preceding year, the petty cash fund is opened again and the previous system of operation continues.

Non-Imprest System:

This is a system of petty cash funds in which the main cashier gives the fund to the petty cashier to make specific expenses only. After making such expenses, the remaining balance and expenses details are submitted to the main cashier by the petty cashier. This is the least used system for petty cash funds by offices.

Types of Petty Cash Book

For the recording of petty cash fund and transactions under it, petty cash book is used. There are mainly two types of petty cash books. These are explained as under:

Simple Petty Cash Book:

This is the most simple type of petty cash book. In this type of petty cash book, cash receipts and cash payments are recorded. No categories of petty expenses are used in this type of petty cash book. This directly records all the petty expenses and its adjustment is done after the period for which the petty cash fund is maintained. The specimen of this type of petty cash book is given below:

Simple Petty Cash Book

Receipts (Rs.)	Date	Particulars	Voucher No.	Amount (Rs.)

Analytical Petty Cash Book: This is a more comprehensive type of petty cash book than a simple petty cash book. This consists of separate columns for different petty expense heads. With the use of this type of petty cash book, the total of each of the expenses can be separately calculated. The closing of such a petty cash book is similar to the simple petty cash book. The specimen of analytical petty cash book has been presented below:

Analytical Petty Cash Book