Prepare a petty cash book using the imprest system, with analysis columns, and post the totals

What this dot point is asking

SEAB wants you to prepare a petty cash book run on the imprest system, using analysis columns, and to post the column totals. The central insight is that the imprest system keeps small-cash spending under tight control: the cashier starts with a fixed float, spends from it, and is reimbursed at period end by exactly the amount spent, so the float returns to its original size.

The answer

Why a petty cash book

Many payments are small and frequent (stationery, postage, travel). Routing them all through the main cash book would clutter it. A separate petty cash book handles these small payments, kept by a petty cashier under the control of the main cashier.

The imprest system

The imprest system works on a fixed float (the imprest amount):

1. The cashier begins the period with the float, say \300$.
2. Small payments are made and recorded, each backed by a petty cash voucher.
3. At period end the cashier is reimbursed with exactly the total spent.
4. This restores the float to \300$ for the next period.

At any moment, cash held plus the vouchers for payments should equal the imprest, which makes checking simple.

Analysis columns

The petty cash book has a total column for each payment, then several analysis columns that classify the payment by type (stationery, postage, travel, sundries). Each payment is entered once in the total column and once in the matching analysis column, so the analysis columns add across to the total.

Posting the totals

At period end:

• Each analysis column total is debited to its expense account in the general ledger (Stationery, Postage, Travel).
• The petty cash book itself is the credit side (the payments), so the double entry is completed by posting the totals.

The sum of the analysis-column totals equals the total spent, which equals the reimbursement.

Examples in context

Example 1. A quick cash check. A manager checks the petty cash tin mid-week. The float is \200$; the tin holds$\$120$ and there are vouchers for \80$. Because$120 + 80 = \$200$ equals the imprest, nothing is missing. The imprest system makes this spot-check instant.

Example 2. Classifying spending at a glance. Over a month the analysis columns show travel \400$, postage$\$150$ and cleaning \250$. Posting these totals to their expense accounts tells the owner exactly how the small-cash budget was used, without sifting through dozens of individual vouchers.

Try this

Q1. State what the imprest amount is and how it is restored. [2 marks]

• Cue. The imprest amount is the fixed petty cash float; it is restored by reimbursing exactly the amount spent at period end.

Q2. A float of \150$has$\$95$ spent during the week. State the reimbursement and the closing float after it. [2 marks]

• Cue. Reimbursement = \95$; the float is restored to$\$150$.

Q3. State how the analysis-column totals are posted to the ledger. [2 marks]

• Cue. Each analysis-column total is debited to its expense account (e.g. Stationery, Postage) in the general ledger.