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53
The payments part of the cash book for 1 September would look like this.
CASH BOOK (PAYMENTS)
Date
Narrative
Total
$
1 Sep 20X7
Accounts payable: Kew
120
Accounts payable: Hare
310
Telephone
400
Gas bill
280
Petty cash
100
Machinery purchase
1,500
Balance c/d (balancing figure)
1,660
4,370
As you can see, this is very similar to the receipts part of the cash book. The only points to note are
as follows.
(a)
The analysis on the right would be under headings like 'payments to payables', 'payments into
petty cash', 'wages' and 'other payments'.
(b)
Payments during 1 September totalled $2,710. We know that the total of receipts was $4,370.
That means that there is a balance of $4,370 – $2,710 = $1,660 to be 'carried down' to the
start of the next day. As you can see, this 'balance carried down' is noted at the end of the
payments column, so that the receipts and payments totals show the same figure of $4,370 at the
end of 1 September.
With analysis columns completed, the cash book given in the examples above might look as follows.
CASH BOOK (RECEIPTS)
Accounts
Cash
Date
Narrative
Total
receivable
sales
Other
$
$
$
$
1 Sep
Balance b/d
900
20X7
Cash sale
80
80
Accounts receivable: Hay
380
380
Accounts receivable: Been
720
720
Accounts receivable: Seed
140
140
Loan: Len Dinger
1,800
1,800
Cash sale
150
150
Sale of non-current asset
200
200
4,370
1,240
230
2,000
CASH BOOK (PAYMENTS)
Accounts
Petty
Date
Narrative
Total
payable
cash
Wages
Other
$
$
$
$
$
1 Sep
Accounts payable: Kew
120
120
20X7
Accounts payable: Hare
310
310
Telephone
400
400
Gas bill
280
280
Petty cash
100
100
Machinery purchase
1,500
1,500
Balance c/d
1,660
4,370
430
100
–
2,180
4.3 Bank statements
Weekly or monthly, a business will receive a bank statement. Bank statements should be used to check
that the amount shown as a balance in the cash book agrees with the amount on the bank statement,
and that no cash has 'gone missing'. This agreement or 'reconciliation' of the cash book with a bank
statement is the subject of a later chapter.
BPP Tutor Toolkit Copy
PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS
54
5
Petty cash
Most businesses keep petty cash on the premises, which is topped up from the main bank account.
Under the imprest system, the petty cash is kept at an agreed sum, so that each topping up is equal to
the amount paid out in the period.
5.1 What is petty cash?
Most businesses keep a small amount of cash on the premises to make occasional small payments in
cash, eg staff refreshments, postage stamps, to pay the office cleaner, taxi fares, etc. This is often called
the cash float or petty cash account. The cash float can also be the resting place for occasional small
receipts, eg cash paid by a visitor to make a phone call.
5.2 The petty cash book
A
petty cash book
is a cash book for small payments.
Although the amounts involved are small, petty cash transactions still need to be recorded; otherwise
the cash float could be abused for personal expenses or even stolen.
There are usually more payments than receipts, and petty cash must be 'topped up' from time to time
with cash from the business bank account. A typical layout follows.
PETTY CASH BOOK
Receipts Date Narrative
Total
Milk Postage Travel Other
$
$ $ $ $ $
250
1 Sep
Bal b/d
20X7 Milk
bill
25 25
Postage
stamps
5
5
Taxi
fare
10
10
Flowers for sick staff
15
15
Bal
c/d
195
250
250
25
5
10
15
5.3 Imprest system
Under what is called the imprest system, the amount of money in petty cash is kept at an agreed sum
or 'float' (say, $250). This is called the imprest amount. Expense items are recorded on vouchers as
they occur, so that at any time:
$
Cash still held in petty cash
195
Plus voucher payments (25+5+10+15)
55
Must equal the imprest amount
250
The total float is replenished regularly (to $250, or whatever the imprest amount is) by means of a cash
payment from the bank account into petty cash. The amount of the 'top-up' into petty cash will be the
total of the voucher payments since the previous top-up.
5.4 Example: petty cash and the imprest system
DEF operates an imprest system for petty cash. During February 20X9, the following petty cash
transactions took place.
$
2.2.X9 Stamps
12.00
3.2.X9 Milk
25.00
8.2.X9 Taxi
fare
15.00
17.2.X9 Stamps
5.00
18.2.X9
Received from staff for photocopying
8.00
28.2.X9 Stationery
7.50
BPP Tutor Toolkit Copy
CHAPTER 4
//
SOURCES, RECORDS AND BOOKS OF PRIME ENTRY
55
The amount remaining in petty cash at the end of the month was $93.50. What is the imprest amount?
A $166.00
B $150.00
C $72.50
D $56.50
The solution is B.
$
Opening balance (imprest amount)
150.00
(balancing figure)
Add amount received from staff
8.00
158.00
Less expenditure
(64.50)
(12 + 25 + 15 + 5 + 7.50)
Cash in hand at end of month
93.50
QUESTION
Books of prime entry
State which books of prime entry the following transactions would be entered into.
A
Your business pays A Brown (a supplier) $450.00
B
You send D Smith (a customer) an invoice for $650
C
Your accounts manager asks you for $12 urgently in order to buy some envelopes
D
You receive an invoice from A Brown for $300
E
You pay D Smith $500
F
F Jones (a customer) returns goods to the value of $250
G
You return goods to J Green to the value of $504
H
F Jones pays you $500
ANSWER
A Cash
book
B
Sales day book
C
Petty cash book
D
Purchases day book
E Cash
book
F
Sales returns day book
G
Purchase returns day book
H
Cash book
Two of the requirements of performance objective PO6, 'Record and process transactions and events'
are:
Implement or effectively operate appropriate systems to record accounting data and ensure
effective credit and vendor management and control;
Verify, input, and process routine financial accounting data within the accounting system
This chapter of the Interactive Text will help you fulfil these requirements.
EXAM FOCUS POINT
You will not get numerical questions on the imprest system in your exam. However, you do need to be
aware of how the imprest system works, so make sure you work through the above example carefully.
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