CHAPTER 11

Maintaining petty cash records

Contents

1 The purpose of petty cash2 Security and control of petty cash3 The imprest system4 Petty cash vouchers5 The petty cash book6 Recording and analysing petty cash

transactions7 Recording petty cash transactions: sales tax8 Topping up the float, balancing off and

posting petty cash

Chapter scenario

The purpose of petty cash

Payments for small items of expense

Exam focus point: A possible MCQ might be 'Which one of the following items would/would not be paid out of petty cash?'

Question

Would you say that the items, amount and recipient below are acceptable for petty cash payments at Top Toys

Expense item Amount Direct recipient Acceptable?

Portable air conditioning unit $75.99 S.Gray, off. manager

Coffee filters for office coffee machine $2.99 Asif Sultan, PA

Bunch of flowers for Valentine's day $18.00 Nick King, Sales

Bus ticket to Plastics Today conference $2.60 Nick King, Sales

Security and control of petty cash The petty cash box Limiting the size of petty cash payments Authorisation and authorisation limits Receipts

Sales tax receipts No available receipts

The imprest system

Petty cash vouchers

Prepared by cashier when payment is requested

Usually, vouchers are numbered in sequence for each year, starting at 1 with the first voucher each year

For what?

Example

On Monday 14 December 20X7 you receive the following requests for reimbursement. The last voucher used the previous week was numbered 100.(a) The receptionist, Mrs T Scott, produces a receipt for postage stamps purchased for office use to the value of $6.25.(b) The sales manager produces a receipt for $7.50 in respect of a return rail ticket, purchased in order to visit a customer.

Task:Using the blank petty cash vouchers provided, complete

vouchers for the above two items. Ignore sales tax.

Answer

Petty cash payments for expenses not yet incurred

ExampleSuppose that a director of company C needs

money to pay for a taxi and asks for $20.00 from petty cash on 5 July 20X7. The payment might be sanctioned by the accounts supervisor, T Roberts. The next day, the director returns with a taxi cab receipt for $15.50 and gives back change of $4.50.

Solution

Payment in advance Voucher received

Checks on petty cash and vouchers

What might be the reason?(a)A mistake in the amount of cash paid out, eg

the petty cashier might have paid out $10.00 for a voucher of only $9.80, leaving a 20c shortage of cash

(b) Theft from the petty cash box

IOUs and petty cash

When staff borrows cash, he or she must put an IOU into the petty cash box

IOUs are equivalent to cash

Receiving money into petty cash An employee of the organisation might use some of the

office's postage stamps, to put on personal letters. He or she will pay for the stamps by giving the cash to the petty cashier

Similarly, employees might be expected to pay for any private telephone calls that they make from an office telephone

Very occasionally, perhaps when the petty cash float is running low, the money received from a cash sale might be used to boost petty cash.

Question

On Tuesday 15 December 20X7, you receive the following requests for reimbursement.

(a) The new office clerk presents bus tickets for amounts totalling $3.60 to support a request for payment for his first week's travel to work.

(b) Ten new printer cartridges have been received costing $5.50 each. An invoice has been sent with the goods and a receipt will be issued on payment.

(c) The office caretaker asks for $5 to pay as a gratuity to the refuse collectors, as has been customary in previous years.

(d) A clerk says that the administration manager asked him to purchase coffee, tea and sugar for the office kitchen. The receipt shows a total cost of $15.40.

Answer

I am not able to complete vouchers for any of the items in this exercise.

(a) I would refuse reimbursement. The cost of an employee's daily travel to work is not an expense of the business.

(b) This request exceeds the $25.00 limit applying to petty cash disbursements. I would refuse the request: the bill will be paid from the main bank account.

(c) No receipt will be available and the request should therefore be referred to the Administration Manager.

(d) The sum exceeds my $10.00 authorisation limit and should be referred to the Administration Manager.

Petty cash book

Example: Writing up petty cash book payments

There are four analysis columns in the petty cash book.• Travel• Postage• Stationery• Sundry items

Answer

Example

Here are two receipts for payments that include a tax element. A claim from petty cash is made separately for each. How would these be recorded as petty cash vouchers and how would they be recorded in the petty cash book?

Answer

Voucher

Answer

Petty cash book

Topping up the float, balancing off and posting petty cash

Answer

Answer

1. Cast and cross-cast columns in petty cash book2. Count cash and vouchers in petty cash box3. Calculate amount of, and prepare, cheque requisition and cheque4. Specifying notes and coins required, cash cheque at bank and put cash in box, enter in petty cash book5. Balance off petty cash book6. Check balancing off7. Post totals to general ledger

Quiz

1 Why do organisations need petty cash?2 Who is responsible for the safety and security of the petty cash

box?3 What is the nature and purpose of the imprest system?4 (a) What details are shown on petty cash vouchers?

(b) What information is usually only added to petty cash vouchers when the petty cash book is about to be written up?(c) What should be attached to a petty cash voucher?

5 What items are recorded on the left-hand side of the petty cash book? And what on the right?

6 Why might money be received into petty cash?7 On what grounds could you ignore the sales tax element of petty

cash vouchers?8 State the 7 steps for topping up, balancing off and posting petty

cash.

Answer

1 Because small items of expense need to be paid for out of notes and coins.

2 The petty cashier, a 'deputy' in his or her absence.3 The imprest system is designed to keep control of petty cash. The

imprest amount is the maximum amount in the petty cash box4 (a) Purpose of payment, amount paid, name and signature of

recipient, name and signature of person authorising payment, date of payment.(b) Voucher number(c) Receipt

5 Receipts (debit side). Payments (credit side).6 Payments from employees for personal use of company property,

cash sales7 If it were company policy to do so.

QB 19

An organisation restores its petty cash balance to $500 at the end of each month. During January, the total column in the petty cash book was recorded as being $420, and hence the imprest was restored by the amount. The analysis columns, which had been posted to the nominal ledger, totalled only $400. This error would result in

A No imbalance in the trial balanceB The trial balance being $20 higher on the debit sideC The trial balance being $20 higher on the credit sideD The petty cash balance being $20 lower than it should

be

Answer: C