Write short note on Petty cash Book.
#ignou BCA second semester subject ECO 02 previous year question with answer
Question.Write short note on Petty cash Book.
Answer
The petty cash book is a specialized accounting record used to track and control small, routine cash expenses within an organization. It is particularly relevant for exam paper answers related to cash management and internal controls. Here are some important points to note about the petty cash book:
1. Definition: The petty cash book is a subsidiary book that records small cash transactions, typically referred to as petty cash expenses. These expenses are usually small in value and occur frequently, such as minor office supplies, postage, or refreshments.
2. Purpose: The primary purpose of the petty cash book is to provide a systematic and organized method for recording, monitoring, and controlling small cash expenditures. It allows for better tracking and accountability of petty cash transactions.
3. Cash Float: The petty cash book begins with an initial cash float, which is the fixed amount of money provided to cover petty expenses. The amount of the cash float is determined based on the anticipated needs of the organization and the frequency of petty cash expenses.
4. Custodian: A designated employee, often referred to as the petty cash custodian, is responsible for managing the petty cash fund, maintaining the petty cash book, and disbursing cash for approved expenses. The custodian ensures that the fund is secure and used appropriately.
5. Recording Transactions: Petty cash transactions are recorded in the petty cash book. Each entry typically includes the date, a brief description of the expense, the amount disbursed, and the account to which the expense should be allocated.
6. Vouchers: To support the petty cash transactions, a voucher system is commonly used. A petty cash voucher is a document that details the purpose, amount, and recipient of a petty cash expenditure. The voucher is attached to the petty cash book as evidence of the transaction.
7. Replenishment: As the petty cash fund is depleted, it needs to be replenished periodically. Replenishment occurs by reimbursing the custodian for the total amount of the petty cash expenses recorded in the book. The reimbursement is typically done by writing a check or transferring funds from the main cash account to the petty cash fund.
8. Imprest System: The petty cash book often operates under the imprest system, which means that the petty cash fund is maintained at a fixed amount. The fund is replenished back to the original float amount, ensuring that a constant cash balance is available for petty expenses.
9. Control and Auditing: The petty cash book serves as a control measure to monitor and verify small cash transactions. Regular reconciliations between the recorded expenses and the remaining cash balance are conducted to detect discrepancies or errors. Auditors may review the petty cash book to ensure proper controls and accurate recording of transactions.
10. Limitations: While the petty cash book provides a convenient method for managing small cash expenses, it is important to note its limitations. It may lack the detail and accuracy of full double-entry bookkeeping and is subject to potential misappropriation or errors. Therefore, proper controls, such as regular audits and segregation of duties, should be in place.
In conclusion, the petty cash book is a subsidiary accounting record used to track and control small cash expenses. It helps organizations manage petty expenditures efficiently, maintain accountability, and monitor cash usage. Understanding the purpose, procedures, and control measures associated with the petty cash book is crucial for exam preparation in accounting or financial management courses.
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