Petty Cash Book – JSS2 Business Studies Lesson Note (Second Term)

A petty cash book is a cash book used for recording small or minor expenses of a business.

Behavioural objectives

1. Define a petty cash book.
2. State the minor expenses recorded in a petty cash book.
3. Give reasons for keeping a petty cash book.
4. State the differences between a cash book and a petty cash book.
5. Enter transactions into a petty cash book with analysis columns.

What is a petty cash book?

A petty cash book is a book in which the small day-to-day expenses of a business are recorded. “Petty” means small.

What are the key terms?

• Petty cash: a small amount of money kept in the office to pay minor expenses.
• Cash float: the amount of money given to the petty cashier at the start of a period.
• Petty cashier: the person who keeps the petty cash and writes the petty cash book.
• Voucher: a document that proves a payment was made.
• Analysis column: a column that groups expenses of the same kind, such as postage or stationery.
• Sundry expenses: small expenses that do not fit any other column.

What expenses are recorded in a petty cash book?

The petty cash book records minor expenses paid in cash.

• Postage stamps: money spent on stamps for letters and parcels.
• Carriage: the cost of moving small goods or parcels.
• Telegrams: the cost of sending telegram messages.
• Stationery: pens, paper and similar office items.
• Telephone: small telephone costs.
• Envelopes: the cost of buying envelopes.
• Travelling expenses: small transport costs, such as fare for an errand.

How is petty cash set up?

Petty cash is set up by paying a cash float to the petty cashier at the beginning of a month.

1. The main cashier pays the cash float to the petty cashier.
2. The cash float is credited to the main cash book.
3. The petty cash book is debited with the same amount, on the receipt side.
4. The petty cashier pays small expenses and records each one.
5. At the beginning of the next month, the petty cashier is reimbursed to make up the cash float.

Who keeps the petty cash book?

The petty cashier keeps the petty cash book, and the main cashier supervises the petty cashier.

• Petty cashier: pays out small amounts and records each payment.
• Main cashier: checks the petty cash book and gives the money for reimbursement.

What is a petty cash voucher?

A petty cash voucher is a document that shows why a petty cash payment was made.

• Date: the day the money was paid.
• Purpose: what the money was spent on.
• Amount: how much was paid.
• Signature: the person who received the money signs, and the payment is approved.
• Voucher number: each voucher is numbered and the number is written in the petty cash book.

Why do we keep a petty cash book?

A petty cash book is kept to save time and to make the main cash book simpler.

• Saves time: the time wasted posting minor expenses to the ledger is saved.
• Reduces the burden of the main cash book: small items no longer fill its pages.
• Gives control: the petty cashier is responsible for a fixed sum, and the main cashier checks it.
• Groups expenses: analysis columns show how much was spent on each kind of expense.

What is the difference between a cash book and a petty cash book?

A cash book records all the cash and bank receipts and payments of a business, mainly the major items.

A petty cash book records only small payments made in cash, usually by the petty cashier.

What is the form of a petty cash book?

A petty cash book has a receipt column on the left and a payment side with analysis columns on the right.

• Receipt: the cash float received.
• F: the folio, which shows where the entry is also recorded.
• Date: the day of the transaction.
• Voucher No: the number of the voucher for the payment.
• Total expenses: the full amount paid each time.
• Analysis columns: one column for each kind of expense, such as travelling, postage, stationery, carriage and telegram.

How do we enter transactions in a petty cash book?

Transactions are entered by recording the float first, then each payment in order of date.

1. Write the cash float in the receipt column, with the date and “C.B” in the F column.
2. Enter each payment on its date, with the details and voucher number.
3. Write the full amount in the total expenses column.
4. Write the same amount in the analysis column for that expense.
5. Add up the total expenses column and each analysis column.
6. Subtract the total expenses from the receipts to find the balance.
7. Write the balance as “Balance c/d” and bring it down as “Balance b/d” on the next date.

• Check: the analysis column totals must add up to the total expenses.

Worked example

Enter the following into the petty cash book, showing the analysis columns for postage, travelling expenses, stationery, carriage and sundry expenses.

• May 1: Petty cash in hand, 2,000
• May 3: Paid for postage stamp, 150
• May 5: Paid for travelling expenses, 700
• May 6: Paid for stationery, 500
• May 10: Paid for carriage, 100
• May 20: Paid for sundry expenses, 100
• May 22: Paid for stationery, 200

Petty cash book

• Total expenses: 150 + 700 + 500 + 100 + 100 + 200 = 1,750.
• Stationery column: 500 + 200 = 700.
• Balance: 2,000 – 1,750 = 250.

Evaluation

1. Define a petty cash book.
2. State two reasons for keeping a petty cash book.
3. State two differences between a cash book and a petty cash book.
4. Who keeps the petty cash book, and who supervises that person?
5. Enter the following transactions into a petty cash book with these headings: postage and stationery, travelling expenses, carriage and office expenses.
   • Jan 1: Petty cash in hand, 3,000
   • Jan 2: Bought stamp, 500
   • Jan 4: Travelling expenses, 300
   • Jan 8: Bought stamp, 200
   • Jan 10: Paid carriage, 100
   • Jan 12: Repairs of office equipment, 500
   • Jan 15: Bought envelope, 150
   • Jan 25: Paid office cleaner, 200

Assignment

Explain what a cash float is, and state how it is recorded in the main cash book and in the petty cash book.