Petty Cash Book is used for recording payment of petty expenses, which are of smaller denominations like postage, stationery, conveyance, refreshment, etc.
The difference between a petty cash book and a cash book is that a petty cash book is used to record small and repeated transactions whereas a cash book is used to record transactions of larger sums.
Along with a regular cash book, most companies maintain a separate petty cash book to record small and daily expenses like food, fuel, office supplies, electricity, postage, newspaper, travel, etc. The person responsible for recording these transactions is called a petty cash cashier.
Petty cash is a small amount of money a company keeps for small, incidental expenses. These minor payments include office supplies, stationery, meals, client lunch, stamps, etc. The number of petty cash funds could change depending on the organization's size.
Petty-cash funds are to be maintained on an imprest basis. The custodian/s should balance the fund each day to ensure that the available cash and the approved petty cash vouchers tally. Petty cash disbursements are limited to $50.00 or less per individual, per month.
Every company has a petty cashier who is responsible for maintaining the petty cash book. Basically, the petty cashier receives money from the head accountant in the form of a cheque.
The small expenses that your business makes with petty cash might not seem like a big deal, tax-wise. But they can add up. If you average $100 petty cash expenses per month, that's $1,200 you could potentially write off your tax bill next year!
The petty cash book is maintained by the petty cashier. He is the one responsible for recording the petty cash transactions in the petty cash book.
A simple petty cash book is identical to a cash book. Any cash that a petty cashier receives is recorded on the debit or receipts side and any cash that he pays is recorded on the credit or payments side. In this type of Cash book, all the expenses are recorded in one single column.
Nowadays, petty cash is most common for brick-and-mortar businesses or businesses that often transact in cash. For other companies, it's usually simpler to automate accounting and bookkeeping without a petty cash fund.
Following are the three golden rules of accounting: Debit What Comes In, Credit What Goes Out. Debit the Receiver, Credit the Giver. Debit All Expenses and Losses, Credit all Incomes and Gains.
Business credit card
Business credit cards function much in the same way as a personal credit card, allowing employees to pay for their expenses quickly and easily without resorting to using their own money.
A petty cash book is created to facilitate small payments in a business or organization. It caters for items such as postage and stamps, bus fare and stationery. It is meant to meet the day-to-day expenses and is entrusted in the hands of a petty cashier.
Tax deduction on petty cash
According to the law, you cannot make payments in excess of ₹ 10,000 in cash in a day. Such expenses cannot be deducted from your business income.
Petty cash is a current asset and ought to be recorded as a debit on the organisation's asset report.
Petty cash funds are for the purpose of infrequent or emergency departmental purchases. All other purchases must go through the purchase order process via a requisition/request for payment. Under no circumstances can petty cash be used for personal expenses or loans.
The small amount of cash that a company considers petty will vary, with many companies keeping between $100 and $500 as a petty cash fund. Examples of transactions that a petty cash fund is used for include: Office supplies.
Petty cash rules entail designating a custodian responsible for fund management, setting a limit for disbursements, requiring receipts for all expenses, and conducting regular reconciliations. And, petty cash usage should be restricted to authorized business-related expenses only.
Fraud Risk: Petty cash is vulnerable to theft or fraudulent claims. Inefficiency: Modern alternatives like prepaid expense cards or digital tools are faster, more secure, and easier to track.
Petty cash book is a book used in accounting for recording small and repetitive transactions that are of little value. It records small transactions such as postage, telegram, stationery etc.
b) Employee salaries: Employee salaries are not typically recorded in a petty cash book.