Imprest System & Preparation of Petty Cash Book
The petty cash book is the book of original or prime entry which is used for recording small disbursements or expenses.
The reason behind the system is to reduce the numerous cash payment for small expenses. The source documents used in the petty cash book are invoices, receipts, and vouchers.
This is a system for recording petty cash transactions, which are paid out of a cash float. In this system, a specified sum is given to the petty cashier at the start of the accounting period. This specified sum is called “Cash Float”. At frequent intervals, the petty cashier will reimburse for the amount spent, thus bringing it to the original amount.
Advantages of Petty Cash Book:
(i) It reduces or eliminates the risk of fraud.
(ii) It reduces the burden of the main cashier.
(iii) It makes monitoring and analysis of expenses very easy.
(iv) It reduces the number of accounts to be opened in the ledger account.
(v) Liability of the petty cashier can never exceed the imprest account.
(vi) It serves as training for young account clerks.
Procedures of Petty Cash Book:
1. Amount of float from the main cash book:
Credit: Cash book
Debit: Petty Cash book
2. Credit petty cash book with payments made and analyze them.
3. All payments made out of the petty cash book must be supported by authorized vouchers.
4. Analysis column must be totalled at intervals and the total transferred to their respective nominal ledger.
5. Reimburse the petty cash every week or month using the imprest system.
Format of Petty Cash Book:
The following is a summary of the petty cash transaction of Johnson Nig. Ltd for March 2000.
|March 1:||Received from |
as petty cash floats.
|March 18:||Motor expenses||215|
|March 31:||Kayode (Ledger)||75|
You are required to:
(a) Rule up a suitable Petty Cash book with analysis columns for Cleaning, Motor expenses, Postages, Stationery, Traveling and Ledger.
(b) Post the entries into the corresponding ledger accounts.
1. Explain Imprest System
2. State the Advantages of Petty Cash Book
3. Prepare Petty Cash Book.
4. The following transactions were extracted from the books of Mercyland Trading Company as at 31st January 2005. All payment were made by cheque and all receipts were paid to the bank. The company maintains a float of
|January 2:||Cash at Eagle Bank||20,000|
|January 2:||Petty cash in hand||1,400|
|January 3:||Drew Cheque for petty cash||19,600|
|January 5:||Received from Anthony Cheque in |
settlement of his debt
less 10% discount.
|January 6:||Settled Tunde’s account for |
|January 7:||Sold For Cash 20 MTN Cards |
|January 8:||Transferred to Current account |
from deposit account.
|January 10:||Paid Olu||4,800|
|January 16:||Paid Cheque for motor repairs||8,000|
|January 17:||Paid Ade||3,800|
|January 24:||Paid Kofi||4,050|
|January 27:||Paid Kwaime||4,200|
|January 29:||Payment from petty Cash |
during the Month were:
|Sales and wages||8,000|
You are required to prepare:
5. Academy Limited Operates an Imprest System with D20,000 paid out of bank. The following expenses were settled out of petty cash during the month of March, 2010
|March 4:||Postage Stamps||100|
|March 5:||Transport expenses||4,100|
|March 13:||Frank Musa (Creditor)||1,000|
|March 24:||Registered letters||700|
|March 31:||Float restored||?|
You are required to write up the petty cash book for the month of March 2010 having analysis columns for Rates, Postage, Transport, Wages and ledger. (SSCE JUNE 2013)View Solution