61 4.0 CONCLUSION
The cash book is an indispensable book of entry because cash - at hand and bank- is necessary in the running of the day-to-day activities in an organization. Good records of monies going in and out of the organization should be closely monitored.
5.0 SUMMARY
In this unit, we discussed the importance of cash transactions. We also differentiated between a trade discount and a cash discount.
6.0 TUTOR-MARKED ASSIGNMENT
1. Differentiate between a trade discount and a cash discount 2. Explain the term ‘Contra Entry”.
7.0 REFERENCES/FURTHER READING
Aguolu, O. (2010). Financial Accounting. A Practical Approach. Institute for Development Studies, Enugu, Nigeria
ICAN Study Pack (2006). Fundamentals of Financial Accounting. VIPublishing
Limited, Lagos, Nigeria
Anao A.R. (2002). Introduction to Financial Accounting. Longman Nigeria Limited,
Ikeja, Lagos
Igben, R.O. (2000). Financial Accounting Made Simple. ROI Publishers, Lagos, Nigeria
Accounting Technicians Scheme West Africa (ATSWA). Basic Accounting Processes and Systems.
Professional Accounting Tutors Limited (2007). Accounting Standards. Vol. 111, Lagos,
62 UNIT 8 THE PETTY CASH BOOK
CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content
3.1 The Columnar Petty Cash Book 3.2 The Imprest system
4.0 Conclusion 5.0 Summary
6.0 Tutor Marked Assignment 7.0 References/Further Reading
1.0 INTRODUCTION
The petty cash book is used to record the receipt and payment of small amounts of cash. Any large amounts of cash received and cash takings are usually paid into the bank and thus recorded in the cash book. The petty cash book is written up from receipts and petty cash vouchers (where employees are reimbursed expenses).
2.0 OBJECTIVES
After reading this chapter you should be able to do the following:
• Explain the relationship between a petty cash book and the cash account in the general ledger, including the implications of the petty cash book being a book of prime entry as well as being a part of the double-entry system.
• Describe the format of a columnar petty cash book.
• Explain the function of the analysis columns in a columnar petty cash book.
• Describe the petty cash imprest system and its advantages.
• Enter transactions in a columnar petty cash book using the imprest system, and post these to the appropriate ledger accounts.
3.0 MAIN CONTENT
3.1 The Columnar Petty Cash Book
It is usual for a (columnar) petty cash book to have analysis columns on the credit side. Each column relates to a particular type of expenditure, such as postage, stationery or travelling expenses. These are intended to facilitate the posting of entries to the general ledger. Every item of expenditure is entered in both the credit column and an appropriate analysis column. At the end of each calendar week or month the total of each analysis column is debited to the relevant ledger account in the general ledger. Thus, instead of posting each transaction to the general ledger separately, expenditure of the same type is collected together in each analysis column and the total for the period posted to the relevant ledger account.
63 3.2 The Imprest System
Many firms also operate their petty cash on an imprest system. At the beginning of each period (week or month) the petty cashier has a fixed amount of cash referred to as a float. At the end of each period (or the start of the next) the petty cashier is reimbursed the exact amount spent during the period, thus making the float up to its original amount. The reimbursement usually takes the form of a cheque drawn for cash. The amount of the petty cash float is determined by reference to the normal level of petty cash expenditure in each period.
The advantages of the imprest system are as follows:
1. It facilitates control of the total petty cash expenditure in each period as the petty cashier cannot spend more than the amount of the float, except by applying to the management for an increase.
2. It deters theft of cash by the petty' cashier since a large cash balance cannot be accumulated by drawing cash from the bank at irregular intervals.
3. The entries in the petty cash book are kept up to date because the cash expenditure is not reimbursed until the petty cash book is written up and the total amount of expenditure for the period is known.
4. It discourages the practice of loans from petty cash since these would have to be accounted for at the end of the period, and in addition may result in insufficient cash to meet the necessary expenditure.
ILLUSTRATION
A. Santos uses a columnar petty cash book to record his cash payments. He also operates an imprest system with a float of N150,000. During August 20X2 the cash transactions were as follows:
1 Aug Postage stamps: N5,000 2 Aug Cleaning materials: N13,000 4 Aug Recorded delivery: N2,000 5 Aug Gratuity to delivery man: N4,000 7 Aug Tea, milk, etc.: N1,000
9 Aug Rail fare: N11,000
10 Aug Paper clips and pens: N6,000 13 Aug Window cleaner: N10,000 18 Aug Travelling expenses: N7,000 21 Aug Envelopes: N3,000
22 Aug Postage stamps: N9,000 24 Aug Stationery: N14,000 27 Aug Taxi fare: N12,000 28 Aug Office cleaning: N8,000
64 You are required to make the necessary entries in the petty cash book using appropriate analysis columns, and show the relevant general ledger account entries.
The petty cash book
Debit Credit Amount
N’000
Date Details Amount Telephone Cleaning Printing Traveling Miscellaneous and and expenses expenses postage Stationery N’000 N’000 N’000 N’000 N’000 N’000 b/d 150 105 255 b/d 150 20X2 1 Aug Stamps 5 5 2 Aug Materials 13 13 4 Aug Recorded 2 2 Delivery 5 Aug Gratuity 4 4 7 Aug Tea and milk 1 1 9 Aug Rail fare 11 11
10 Aug Clips and pen 6 6 13 Aug Windows 10 10 18 Aug Travelling 7 7 21 Aug Envelopes 3 3 22 Aug Stamps 9 9 24 Aug Stationery 14 14 27 Aug Taxi 12 12 28 Aug Office 8 8 31 Aug Reimbursement 105 16 31 23 30 5 31 Aug Balance c/d 150 255 1 Sept
Alternatively, the cash reimbursement is made at the beginning of the next period, in which case the entries are as follows (highlighted by shading):
Debit Credit Amount
N’000
Date Details Amount Telephone Cleaning Printing Traveling Miscellaneous and and expenses expenses postage Stationery N’000 N’000 N’000 N’000 N’000 N’000 ___ 150 b/d 45 105 150 31 Aug Totals 105 16 31 23 30 5 31 Aug Balance c/d 45 150 1 Sept Reimbursement
65 Ledger entries