MEETING 9

PETTY CASH

A. LEARNING OBJECTIVES
In this meeting, the students will learn about PETTY CASH. By the end of the course, the
students are expected to be able to:
1.1.Understand what petty cash is.
1.2.Understand the petty cash procedure.
1.3.Understand the petty cash book.

B. MATERIAL DESCRIPTION
1.1.What is petty cash?
All businesses and organizations regularly incur small items of expenditure.
Often these expenses are paid for by cash since the amount required may be too small
for the payment to be made by cheque. Such examples of this type of expense could be
payment of postage stamps, travelling expenses, small items of stationery, and so on.
Such small items of expenses are usually recorded in the petty cash book that is
designed specifically for this purpose. So, the petty cash book is used to record small
items of cash expenditure incurred by a business.

1.2.The petty cash procedure

The business will appoint a petty cashier, often a junior member of staff, who is
responsible for looking after the petty cash on behalf of the main cashier. The main
cashier will provide the petty cashier with a sum of money, called a ‘float’. The petty
cashier is then responsible for this money, making payments to members of staff to
repay them for expenses incurred on behalf of the business and keeping records of
payments made, amounts received and balancing the petty cash book at regular
intervals.
The petty cashier will need the following to carry out this task:
 a petty cash book in which to record transactions
  a lockable petty cash box to hold the money
 a stock of blank petty cash vouchers (see page 204) for claims on petty cash to
be made
 a secure place (eg a lockable drawer) in which to keep these items

Making a Claim
Before studying the form-filling procedures we will look at how a claim for petty
cash is made by an employee with the following example:
John works for Harpers Estate Agents as an office junior. His supervisor, Mrs May,
asks John to go to the post office and buy postage stamps for the office. John carries
out this request as follows:
 John goes to the post office and buys the postage stamps for the office. He pays
£4.20 for them in cash and asks for a receipt.
 On his return to the office John gives the stamps and receipt to Mrs May.
 Mrs May authorizes a petty cash voucher that details the purchase of the postage
stamps made by John and attaches the receipt to the voucher.
 The petty cashier gives John £4.20 in cash.
 The petty cashier enters the details in the petty cash book.
As already mentioned, petty cash is used to make small cash payments for
purchases and expenses incurred by the business. Examples of the type of payments
made from petty cash include: postage, small items of stationery, casual labour,
window cleaning, travel expenses such as bus and rail fares incurred on behalf of the
business, donations, etc.
Note, however, that petty cash should not be used to pay for private expenses of
employees, e.g. tea, coffee and milk, unless the business has agreed these in advance.
Usually there will be a list of approved expenses that can be reimbursed from petty
cash. The business will also decide on the maximum value for any transaction that can
be paid out of petty cash; for example, £25 is a common figure.
The Imprest System
As mentioned above, the petty cashier is given a ‘float’ of money at the
beginning of the period to enable payments to be made for expenses incurred during
the period. Most businesses operate petty cash using the imprest system. Initially a cash
‘float’ of a fixed amount of money is given to the petty cashier for a specific time
period. During the period payment is made against the correct documentation – usually
a petty cash voucher – which must be signed and authorized for payment. At the end
of the period, any cash paid out is restored to the same amount for the beginning of the
next week or month. This is known as the ‘imprest’ system. The following example
illustrates the procedure:
Date Description Amount
Jan 1 Float receiver from cashier 100.000
Jan 31 Amount spent during month 70.000
Balance of cash in hand 30.000
Feb 1 Amount received from cashier to restore float to 70.000
original amount
Cash at start of next month imprest 100.000

If, during the period, all the cash is used up then it is possible to obtain further
amounts of money from the cashier to top up the float. It is also possible to increase the
float from time to time if extra money is required for additional expenditure.
One advantage of using the imprest system is that it is possible to check the cash
at any time since the total of expenditure incurred during a period together with the
cash in hand should always equal the original float. Another advantage is that small
items of expenditure can be recorded separately in the petty cash book thereby
eliminating such items from the main cash book. Since this task can be carried out by
a junior member of staff it saves the cashier valuable time that can then be spent in
other areas of work.
Petty Cash Voucher
When an employee incurs expenditure on behalf of the business and then wishes
to get the money back he/she will have to complete a petty cash voucher and provide
documentary evidence such as a receipt if possible. Petty cash vouchers contain the
following details:
 details of expenditure together with a receipt for money spent (if possible)
 amount spent
 signature of person making the claim and to whom the money will be paid
 signature of person authorizing the payment, usually the petty cashier for
amounts within the authorization limit, larger amounts will be authorized by the
accounts supervisor or manager
 the petty cash voucher will then be numbered to enable the documentation to
be filed correctly and easily identified in the petty cash book
An example of a petty cash voucher is shown below.

Petty Cash Voucher

Date: 14 May 2021 No. 83
Description Amount Voucher
Number
Train fare 5.000 83

Total 5.000

Signature : ........................
Authorized: ........................

Authorization of Petty Cash Vouchers

When the petty cashier receives a completed petty cash voucher from a member
of staff it is important to check that the voucher has been completed correctly, signed
by the person making the claim and has been properly authorized. It is important to
 check that the amount claimed for is within the authorized limit. For example, the
organization may allow payments to be made by petty cash up to £25 as already
mentioned above. The petty cashier should also check the voucher for accuracy in the
calculations and wherever possible ensure that a receipt is attached to the voucher. The
petty cash voucher details are then entered in the petty cash book and the voucher filed
away in numerical order so that it may be easily located if necessary.

1.3.Petty Cash Book

Petty cash book is a book used for recording small items of cash expenditure
which are usually analyzed as they are entered. There are two types of petty cash book:
a. Simple petty cash book
Simple Petty Cash Book is just like the main cash book. Cash received by the petty
cashier is recorded on debit side and all payments for petty expenses are recorded
on credit side in one column.

Format of Simple Petty Cash Book

SPECIMEN OF SIMPLE PETTY CASH BOOK

Cash Received C.B. Folio Date Particular Particulars V.N. Total Payment

b. Analytical Petty Cash Book

It is the most advantageous method of recording petty cash payments. In this type,
a separate column for each petty expense is provided on credit side. When petty
expense is recorded in total payment column, the same amount is recorded in the
relevant petty expense column.
 Format of Analytical Petty Cash Book
SPECIMEN OF ANALYTICAL PETTY CASH BOOK
Cash Received C.B. Folio Date Particular V.N. Total Payment Postage Stationery Traveling Exp Sundry Office Exp

Example of Simple Petty Cash Book

Record the following transactions in a Simple Petty Cash Book for the Month or
January 2019.

Solution
Example of Analytical Petty Cash Book
Record the following transactions in an analytical petty cash book for the month of
January 2019.

Solution
C. EXERCISE
1.1.Exercise 1: Determining items claimed for by petty cash.
You are employed as petty cashier for a small advertising agency. The agency operates
the petty cash imprest system in which small items of expenditure incurred by staff
members up to £25.00 are paid by you, any item of expense above £25.00 is paid by
cheque. The accountant asks you to look through a list of expenditure incurred by
employees and to state which items should be paid by you out of petty cash, paid by
the accountant by cheque and those items which you consider not to be business
expenses. Use the table below.
a. Photo copier paper £12.60
b. Office cleaner £26.75
c. Postage on parcel to Hong Kong £3.74
d. Secretary’s weekly train ticket to work £44.00
e. Tea, sugar and milk £4.92 for the office (given to visitors)
f. Coffee £5.20 for staff
g. Postage stamps £8.00
h. Card, fabric and staples for client’s display £83.50
i. Advertisement in local press for new cleaner £21.70
j. Flowers for reception area £7.0

Petty Cash Cheque Not Business Expenses

1.2.Exercise 2: Preparing Petty Cash Vouchers
As petty cashier you have been asked to prepare the petty cash vouchers, shown below,
for signature by the person making the claim. You are to use today’s date and are able
to authorise payments up to £20.00; any amount above that is to be authorised by the
cashier, Bob Allen. You are to assume that Bob Allen duly authorises any payment
above £20.00. The next available petty cash voucher number is 22.
a. Louise Carter purchased postage stamps totalling £18.30 (no VAT).
b. Martin Gould purchased two computer memory sticks from Baxter’s Stationers at
a cost of £4.80 each, including VAT totalling £1.60.
c. The office manager, Chris Edge, recently attended a training conference and wishes
to be reimbursed for his train fare to London of £35.00 (no VAT).
VAT = Value Added Tax
State what other documentation would also be required besides the completed petty
cash vouchers in each of the above. Use the following blank petty cash vouchers.

Petty Cash Voucher

Date: No. ...
Description Amount Voucher
Number

Total

Signature : ........................
Authorized: ........................
 Petty Cash Voucher
Date: No. ...
Description Amount Voucher
Number

Total

Signature : ........................
Authorized: ........................

Petty Cash Voucher

Date: No. ....
Description Amount Voucher
Number

Total

Signature : ........................
Authorized: ........................
1.3.Exercise 3: Petty Cash Book

The petty cashier of Oldham Company paid cash for the following expenditures during
March 2021.March 01: Balance brought forward; petty cash $50.

a. March 01: The amount of petty expenditures for previous moth reimbursed by
chief cashier $200.
b. March 05: Bought some liquid material for cleaning purpose $25.
c. March 10: Paid $20 for van wash.
d. March 13: Bought pens and pencils $15.
e. March 17: Paid for fuel $35.
f. March 20: Paid $55 for casual labor.
g. March 22: Donated $10 to SBA – a charitable institution.
h. March 30: Bought a broom for office $5

Required: Record the above transactions in a petty cash book assuming a petty cash
imprest system is used by the Oldham Company. Use both simple petty cash book
and analytical petty cash book.