When the business grows and the number of transactions increases, it becomes difficult to record all these transactions in a single book.
To make the task easier, these small and recurring expenses are recorded in a separate cash book called ‘Petty Cash Book’.
The sum of money to make immediate payments for miscellaneous expenses is known as Petty Cash.
Advantages of petty cash book are burden of main cash book keeper is reduced, helps in preparation of ledger accounts, etc.
Cash is maintained on the basis of ordinary system or imprest system. In ordinary system petty cashier is given a certain amount of cash to meet the petty expenses. Amount of advance and the period of advance may not be fixed. When cashier has nearly spent the whole amount, he submits the account of expense along with the surplus amount.
In imprest system a fixed amount is estimated to meet the expected petty expenses of a particular period. Imprest means ‘advance made to a certain person’.
Head cashier gives a definite sum to the petty cashier at the beginning of a particular period, known as imprest amount.
Advantages of imprest system of Petty Cash are control over mistakes, control over petty expenses, control over fraud and control over cash.
Petty cash book can be simple or analytical.
A simple petty cash book is one in which there is one common column for date and particulars, for both the receipts and payments.
Analytical petty cash book is a book in which there is only one amount column on the debit side and a number of columns on the credit side for different heads of expenses.
There are differences between Simple & Analytical petty cash book.