What Is a Petty Cash Book Used For?

Answer 1

A petty cash book is something that is used when businesses want to make small purchases. Petty cash is a term that specifically refers to a small amount of money. Usually, this means a total that is less than 100 dollars. A petty cash book is used to account for these small petty cash purchases.

This cash is usually held by an employee designated as the custodian of the petty cash. When something is purchased using money set aside for petty cash purchases, an entry is made in a ledger referred to as the petty cash book.

Most companies refuse to issue company credit cards to a large number of employees. For this reason, petty cash may be required to cover a number of different business related expenses that employees may incur. For example, an office manager may need to use petty cash funds to purchase office supplies.

Having such a transaction be made with petty cash instead of credit creates less liability for the business. If the office manager used a credit card instead, there is a higher chance that large fraudulent purchases could be made.

Using a petty cash book also has other advantages. One of the most important of these is the time it can save. Writing checks for different small purchases can be quite time consuming. This is due to the fact that few people in a company actually have the authority to write checks. With a petty cash account, however, the people that write checks and the employees that use them can be free to attend to more important duties.

One of the most important parts of implementing a petty cash account is making sure that all cash taken from such an account is replaced with receipts or vouchers for proper accounting. Doing such record keeping is very important. It makes sure that every expense incurred is debited to the correct account. For example, the cost of landscaping supplies should be debited to landscaping. It also provides for a rather easy reconciliation of the account used to prove that the amount of receipts and cash on hand equal the total in the petty cash book.

Today, however, petty cash books generally exist as computer programs as opposed to actual physical ledgers. This mirrors the transition of accounting to digital files from paperwork on the whole.