Petty procedures
Sue Pope outlines the procedures for handling and accounting for petty cash in the workplace
Petty cash procedures are an important part of both the Foundation level of the NVQ and the Certificate level of the Diploma pathway. Many businesses will keep a small amount of petty cash on the premises in order to buy low-value items such as tea and coffee, or to reimburse employees for business expenditure such as taxi fares. It is important that petty cash is kept securely:
• petty cash should be under the control of a petty cashier, with one or two other persons authorised to access the petty cash in his/her absence;
• petty cash should be kept in a locked container, the keys to which are held by the petty cashier and authorised personnel only; and
• a numbered petty cash voucher should be completed for every payment detailing the expense incurred and any VAT. Receipts should be attached to the voucher which must be signed by an appropriate person to authorise the payment.
The imprest system
Petty cash is often operated using an imprest system. Here, an amount of money, the petty cash float, is withdrawn from the bank and placed in the petty cash tin. Authorised expenses are then paid out of the float. At regular intervals, the float is restored to its original amount, known as the imprest amount. All money paid into or taken from the petty cash tin should be recorded in a petty cash book, an example of which is shown below:
The petty cash book often forms part of the double entry system, although it can be operated simply as a book of prime entry:
• receipts are recorded on the debit side and payments on the credit side;
• the payments side has analytical columns for the various types of expenditure the business expects to incur and, if relevant, for VAT; and
• the totals of these columns are transferred periodically to the main ledger accounts, usually when the imprest amount is restored.
An example
On 1 May, Houghton Builders had £80 in petty cash. During the month, the following payments were made:
£
06.70 05 May Coffee
08.00 12 May Pens
12.40 17 May Taxi fare
08.60 25 May Envelopes
The petty cash book would be written up as below (note: this example ignores VAT and voucher numbers).
Step 1: the opening balance is recorded on the debit side:
Step 2: the payments are recorded on the credit side, in the total column AND the relevant analytical column:
Step 3: at the end of the month, the petty cash account is balanced and the totals of the analytical columns are transferred to the main ledger accounts:
Step 4: the total amount spent in May was £32.70 (£80 – £47.30). On 1 June, £32.70 is withdrawn from the bank and paid into the petty cash account in order to restore the imprest amount of £80.
Reconciliation
It is essential that, before the imprest amount is restored, a check takes place to ensure that:
• the amount of money in the petty cash tin equals the balance carried down in the petty cash book; and
• the total of the petty cash vouchers equals the amount needed to restore the imprest.
If this is not the case, it will be necessary to ascertain why. It may be that errors have been made in recording amounts, too much or too little cash has been paid out, or that cash has gone missing.
Sue Pope is an AAT author and moderator
