FA1 RECORDING FINANCIAL TRANSACTIONS
Petty cash payments are regularly made by most businesses. From time to time the cash balance is topped up so that it does not run out. There are several systems for topping up the petty cash float. The most common system used is the imprest system.
A petty cash box or tin is set up with a specified amount of cash. This amount of cash is known as the imprest amount. This should be enough cash to cover foreseeable petty cash expenses for, say, two to four weeks. The aim is to avoid having to top up petty cash too often, but at the same time avoid having too much cash in the petty cash float, where it could be at risk of loss or theft.
Completed petty cash vouchers are stored in the petty cash tin whenever cash is paid out. Periodically, the amount of cash in the tin is topped up to the original imprest amount. When this happens, the petty cash vouchers in the tin should be taken out, and filed away safely. (Before they are filed away, they should be used to record the transactions in the petty cash book or log. This is explained later.)
The amount of cash required to top up the petty cash float is therefore the amount of money taken out since the last time it was topped up. This should be the total value of the vouchers in the petty cash tin.
A check can therefore be made, when petty cash is topped up, that the amount required to top up the petty cash float is the total value of the vouchers in the tin. This is a useful security check, to deter the theft of cash. Indeed, the petty cash tin can be checked at any time and the total of the cash on hand plus the value of the petty cash vouchers should equal the imprest total.
The petty cash float is topped up with cash obtained by a payment from the bank account.
The petty cash system of HHG is operated on an imprest system, and the imprest amount is $100. The petty cash float is topped up every week.
At the end of one particular week, there are petty cash vouchers in the tin for $4.67, $12.90, $2.99, $5.06 and $16.25.
How much cash should be withdrawn from the bank to restore the petty cash float to $100?
For a suggested answer, see the 'Answers' section at the end of the book.
Most petty cash systems operate with an imprest system, because there is an in-built check to make sure that cash is not lost or stolen. However, it is also possible to set up a system that is not an imprest system, and to simply top-up the cash float every so often.
For example, suppose a business estimates that the weekly petty cash expenditure is approximately $50, and it wants to top up the petty cash float every two weeks. Withdrawals from petty cash are made using the procedures already described.
CHAPTER 8
A petty cash float could be set up with an initial amount of $100. Every two weeks, a further $100 would be withdrawn from the bank account to supplement the petty cash float.
This system could work well if petty cash expenditure each week is, in fact, below $50. However, problems may be encountered if expense claims are higher than expected in any two-week period, so that the petty cash float may be insufficient to meet all valid claims. Equally if expenditure was significantly less than $50 each week, then a large surplus float would develop, possibly increasing the risk of loss or theft of cash.
As the imprest system is more common, the remainder of the chapter is based on this system.
When cash is received to top-up the petty cash float it is normally being topped up to the imprest amount (or any other amount in a non-imprest system). Therefore, the cash that is increasing the petty cash float is from the bank account.
The petty cash log or book will simply show the receipt of cash from the bank and the date of the receipt.
A petty cash system has an imprest amount of $50. On 26 March there is a cash float remaining of $1.21 plus vouchers showing claims of $48.79.
Task
Calculate the amount of cash required to top-up the petty cash float to restore the imprest amount on 26 March 20X3 and record this amount in the petty cash log or book.
Solution
The amount required to restore the petty cash imprest amount is $48.79. This covers the claims made during the period and tops up the cash float to the imprest amount of $50.
| Date | Receipts $ | Voucher number | Payments $ | Details | Total payment $ | Sales tax $ |
|---|---|---|---|---|---|---|
| 26/3 | $48.79 | Bank |
The cash paid to restore the petty cash float is cash withdrawn from the bank account. Therefore the bank ledger account will show a payment on the same date for the amount of cash required, in the example above $48.79.
FA1: RECORDING FINANCIAL TRANSACTIONS
When all petty cash receipts and payments have been made during a period, they must be recorded in the petty cash log or book. The analysis of payments must be totalled in preparation for them to be recorded in the general ledger. This may be done, either at the time the cash float is topped-up or at fixed intervals, for example at the month-end.
On 1 May 20X3 a business established a $100 float (the imprest amount) for the first time. During the week ended 8 May the following petty cash vouchers were stored with the petty cash log or book when the claims were paid:
For what required
Printing letterheads (including 20% VAT)
Signature
8 Gordon
For what required
Taxi (no VAT invoice)
Signature
A McDougall
For what required
Tea, coffee
Signature
SP Oak
For what required
Stationery (including 20% VAT)
Signature
J Wilson