Petty Cashbook is prepared to

A. Meet the requirements of small business

B. Meet the small expenses paid in cash

C. Cover small and miscellaneous incomes

D. All of the above

Details:

A petty cash book is maintained to record small expenses such as postage, stationery, and telegrams. A separate column is used for each type of expenditure.

The difference between the sum of the debit items and the sum of the credit items represents the balance of the petty cash in hand.

A petty cash book also refers to the book in which small payments are recorded, which are not convenient to record in the main cash book.

Systems for Maintaining Petty Cash

Three different systems are used to maintain petty cash. These systems are:

1. Open systems (or ordinary systems) for petty cash

2. Fixed system for petty cash

3. Imprest system of petty cash

Open or Ordinary System of Petty Cash:

Under this system, the petty cashier is given a lump sum to meet petty expenses. When the whole amount of petty cash is spent, the petty cashier submits the account to the chief cashier who again pays a lump sum to the petty cashier.

Fixed System of Petty Cash:

Under the fixed system of petty cash, a fixed amount is given to the petty cashier for a fixed period of time.

At the end of fixed period, the petty cashier submits the details of petty expenses, and the chief cashier again advances a fixed amount for the next fixed period.

Imprest System of Petty Cash:

This is the most scientific approach to maintain Petty Cash.

Under the imprest system, total petty expenses for a specific period are estimated and the amount is advanced to the petty cashier. This amount is known as imprest cash.

The petty cashier spends the imprest cash during the period. At the end of the period, the petty cashier submits the statements covering petty expenditures to the chief cashier.

The amount spent by the petty cashier is reimbursed, thus making up the balance to the original amount.

In this way, the petty cashier will begin every period with an amount equal to imprest cash, and the amount held by the petty cashier will never exceed this.


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