3.9 Petty cash and the imprest system PDF

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3.9

Petty cash and the imprest system     

understand why organisations use a petty cash book recognise the need for a petty cash voucher understand the imprest system make entries in a petty cash book post the appropriate amounts form the petty cash book to the various accounts in the general ledger at the end of the period

Petty cash   

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all businesses frequently incur low-value (petty) items of expenditure which are paid for in cash by employees such expenditure could include train and bus expenses, care mileage expenses, postage, stationery, cleaning materials, hospitality expenses, etc. they petty cash procedure enables staff members who have purchased items or incurred expenditure to readily seek reimbursement provided a receipt is available to verify the expense a junior member of the finance department is normally made responsible for making payments to claimants for the cost of purchases or expenditure incurred and for keeping records of the expenses the float is a sum of money made available for a period (e.g. a month); it’s normally held in a secure box which is additionally held in a safe or lockable desk or cupboard to make a claim, the staff member must complete a petty cash voucher showing the date and details of the item(s) purchased or expenditure incurred, including VAT if applicable, signed by the claimant and countersigned by their manager (below) if the claim exceeds the authority of the petty cashier (e.g. £25), then the claim would have to be referred to the senior cashier of accountant when the petty cash voucher is entered into the petty cash book, it will be numbered for future reference purposes and then filed an example of a petty cash voucher is shown below: o nl y

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items of expenditure approved by the business will be reimbursed unless prior agreement has been received for a particular expense claim the petty cash book is a book of original entry since items (i.e. petty cash vouchers) are first entered into it

The imprest system    

the imprest system simply means topping up a previously established petty cash allowance of, e.g. £150, by the amount of expenses incurred in a particular period if the expenses for a period amounted to £145, then the accountant would give the petty cashier, e.g. £145, to restore the amount back to £150 – often called the cash float the periods involved can be weekly or more usually monthly this example is illustrated below:

Period 1

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The cashier gives the petty cashier The petty cashier pays out in the period Petty cash now in hand The cashier now gives the petty cashier the amount spent Petty cash in hand at the end of period

£ 150 145 5 145 150

the amount of the cash float can be increased if deemed necessary if it was decided to increase the float to £180 the amount given to the petty cashier would be £145 to reimburse for the expenses incurred +£30 to increase the float = £175 then with the balance of £5 + £175 = £180, the cash float is increased

Advantages   

the task of maintaining the imprest system is straightforward and can be carried out by a junior member of the finance department, known as the ‘petty cashier’ the amount of cash can be checked at any time since the cash in the float plus the total of the vouchers should equal the original amount of the float using the petty cash book means many small-value items are eliminated from being entered in the main cash book and ledgers

Worked example of an analytical petty cash book  

a small company offering secretarial services to local businesses incurs the following items of expenditure during May 2018 the items shown below will initially require entering in the petty cash book:

2018 May 1 May 2 May 4 May 6 May 9 May 10 May 12 May 15 May 22 May 25 May 27 May 27 May 31 May 31

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The petty cashier received a cash float of £200.00 from the cashier Stationery £14.10 including VAT £2.35 (see petty cash voucher no. 1) Postage stamps, £22.00 Tea and coffee for office visitors, £8.00 Travel expenses, £16.00 Computer disks, £12.60 including VAT £2.10 Postage on parcel, £3.60 Office cleaner, £25.00 Milk for office, £4.20 Received £6.00 from Anita Kerr, office manager, for personal photocopying* Office cleaner, £25.00 Cleaning materials, £4.67 plus VAT 93p, total spent £5.60 Travel expenses, £23.00 The cashier reimbursed the petty cashier with the amount spent during the month

each of the above items will have had a petty cash voucher completed by the person who had incurred the expenditure on behalf of the business

*Receipts  

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occasionally, a member of staff may wish to purchase stamps from the petty cashier, or perhaps have some photocopying done for their own personal use in these cases, the petty cashier will issue a receipt to the staff member for the amount received:

the above items of expenditure and the receipt are entered in the petty cash book, as shown below:

Entering the petty cash book      

on 1 May, the petty cashier received £200.00 from the main cashier this is the amount of the float for the period of May the cashier would enter this item on the credit side of the cash book, the money comes ‘OUT’ of the bank the debit entry is now shown on the ‘Receipts’ side of the petty cash book, the money comes ‘INTO’ the petty cash note the folio reference ‘CB 19’ (Cash Book page 19) is also entered to cross-reference the entry each petty cash voucher is then entered in date order as follows:  enter the date  enter the details of each payment  a voucher number is then given to each petty cash voucher and entered on the voucher itself and in the ‘voucher number’ column  the total amount of the expenditure incurred is then entered in the ‘total’ column  the expenditure is then analysed into an appropriate expense column  if VAT has been incurred, then the VAT amount is entered in the ‘VAT’ column and the remaining expense in the appropriate column

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e.g. the petty cash voucher shown at the top of this is for stationery amounting to £14.10, in the total column £14.10 is entered, £2.35 is then entered in the VAT column and the cost of the stationery £11.75 is then entered in the stationery column if money is received from the sale of sundry items to a member of staff, as in the case of Anita Kerr who had some personal photocopying, then the receipt of the cash is entered into the ‘receipts’ column (in this example £6.00) the date, details and receipt number are also entered in the appropriate columns the petty cash book now requires balancing off at the end of the month as follows:  add up the ‘total’ column  add up each of the expense columns; the total of all the expense columns added together should now equal the amount shown in the ‘total’ column  this would be: £ p VAT 5.38 Postage 25.60 Cleaning 54.67 Travel expenses 39.00 Stationery 22.25 Sundry expenses 12.20 159.10 Total  the petty cashier now needs to calculate the amount of money needed to restore the imprest to £200.00 for the beginning of the next period  this is as follows:

Amount of float at beginning of May Money received during month Anita Kerr – Photocopying Less Amount spent (see above) Cash in hand at 31 May 2018 Amount of float Less Cash in hand at 31 May 2018 Cash required to restore the imprest

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£ p 200.00 6.00 206.00 159.10 46.90 200.00 49.60 153.10

 the balance of cash in hand at 31 May 2018 (£46.90) is now entered into the petty cash book and shown as ‘balance c/d’ (£49.60)  the ‘receipts’ and ‘total’ columns are now added up and should equal each other (i.e. £206.00); these totals should be shown on the same line and both double underlined  the ‘balance b/d’ on 1 June (£49.60) is now entered in the receipts column and underneath that entry the amount received from the cashier to restore the imprest £153.10 is also entered the double entry for each of the expense columns is now carried out:

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 the total of each expense column is debited to the expense account in the general ledger  the folio number of each general ledger account is entered under each of the expense columns in the petty cash book; this enables cross-referencing, and also means that the double entry to the ledger account has been completed the double entry for all the items above appears below: Cash Book (Bank column only) 2018 May 1 Petty cash June 1 Petty cash

Page 19 Folio £ PCB 31 200.00 PCB 31 153.10

2018 May 31 Petty cash

Folio PCB 31

General Ledger VAT Account £ 5.38

Folio PCB 31

Postages Account £ 25.60

Page 19

2018 May 31 Petty cash

Folio PCB 31

Cleaning Account £ 54.47

Page 29

2018 May 31 Petty cash

Page 44

2018 May 31 Petty cash

Travel Expenses Account Folio £ PCB 31 39.00

Page 56

2018 May 31 Petty cash

Stationery Account Folio £ PCB 31 22.25

Page 60

2018 May 31 Petty cash

Sundry Expenses Account Folio £ PCB 31 12.20

Page 17

Paying creditors from petty cash  

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occasionally a supplier may be paid their account out of the petty cash if this arises then the book-keeping entries would be able to record the payment in the petty cash book, using a column headed ‘ledger accounts’, then post the item to the debit side of the supplier’s account in the purchases ledger this transaction is very rare and would only occur where the item to be paid was small, or if a refund was made out of petty cash to a customer who may have overpaid their account

Bank cash book in a businesses with both a cash book and petty cash book, the cash book is often known as a bank cash book  this means that all cash payments are entered in the petty cash book, and the bank cash book will contain only bank columns and discount columns  when this arrangement is in operation, any cash sales will be paid directly into the bank _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 

Summary  

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the petty cash book is used to record transactions involving small items of expenditure incurred by a member of staff on behalf of the organisation claims for reimbursement of money paid out are usually made on a petty cash voucher; the voucher should be completed with all the relevant details together with receipt (if possible), duly signed and authorised the imprest system is used by many organisations to operate the petty cash system; here an amount of money called a ‘float’ is given to the petty cashier at the start of a period, and at the end of the period the amount spent by the petty cashier is reimbursed by the cashier to restore the imprest to its original amount the advantages of using a petty cash system is that it enables a junior member of staff to be appointed petty cashier so allowing the cashier or accountant to concentrate on other areas of work using the petty cash book saves both the cash book and the ledger account from containing many small items of expenditure the imprest system enables the cash to be checked at any time entries made into the petty cash book include not only petty cash vouchers for expenses incurred on behalf of the business but also receipts of money that may have been received in respect of sundry sales to staff members the petty cash book is totalled, balanced off and the double entry completed with postings to the ledger accounts in the general ledger the cash book is sometimes called a bank cash book hen it only contains bank columns, cash sales having been banked direct and the petty cash book used for small sundry cash items...