Let’s understand what a cashbook is: A petty cash book is a cash book maintained to record petty expenses. By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc. Such expenses areRead more
Let’s understand what a cashbook is:
- A petty cash book is a cash book maintained to record petty expenses.
- By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc.
- Such expenses are numerous in a day for a business and to account for such small expenses along with major bank and cash transactions may create an extra hassle for the chief cashier of a business.
- So, the cash is allocated for petty expenses and a petty cashier is appointed and the task of recording the petty expenses in the petty cashbook is delegated to him.
The manner in which entries are made
When cash is given to the petty cashier, entry is made on the debit side and in the petty cashbook and credit entry in the general cashbook.
Entries for all the expenses are made on the credit side.
Generally, the petty cashbook is prepared as per the Imprest system. As per the Imprest system, the petty expenses for a period (month or week) are estimated and a fixed amount is given to the petty cashier to spend for that period.
At the end of the period, the petty cashier sends the details to the chief cashier and he is reimbursed the amount spent. In this way, the debit balance of the petty cashbook always remains the same.
Format and items which appear in the petty cashbook
The format of the petty cashbook depends upon the type of petty cash book is prepared and the items appearing in it are nothing but petty expenses. Let’s see an example:-
A business incurred the following petty expenses for the month of April:-
- Stamp – Rs. 10
- Postage – Rs. 50
- Cartage- Rs. 100
- Telephone expense – Rs. 500
- Refreshments – Rs. 250
Now we will prepare two types of cashbooks:
- Ordinary Petty Cashbook:
Here, the Petty cash book is of the same format as the general cash book.
The cash allocated for petty expenses is recorded on the debit side of the petty cash book and on the credit side of the general cash book.
- Analytical Petty Cashbook
Here, there are separate amount columns for each type of expense. As the name suggests, this type of petty cashbook helps to analyse the petty cash spending on basis of the type of expense.
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Unfavorable balance as per cash book generally means credit balance in the cash book. This is also known as bank overdraft. Making the above definition more clear, unfavorable balance or bank overdraft means an excessive amount of cash withdrawn than what is deposited in the bank. Simply it is the lRead more
Unfavorable balance as per cash book generally means credit balance in the cash book. This is also known as bank overdraft.
Making the above definition more clear, unfavorable balance or bank overdraft means an excessive amount of cash withdrawn than what is deposited in the bank. Simply it is the loan taken from the bank. When there is an overdraft balance the treatment is just the opposite of that of favorable balance.
Generally for business overdraft occurs when there is immediate or emergency funding for the short term. This can be seen for small and medium-sized businesses. This is considered to be convenient for these businesses because there is no requirement to pay interest on the lump-sum loan, only have to pay interest on the fund you use. Generally linked to an existing transaction account.
To reconcile this we need to prepare a Bank reconciliation statement. The procedure of preparing BRS under unfavorable conditions is as follows
Let us take one example considering one of the above conditions.
The cash book of M/s Alfa ltd shows a credit balance of Rs 6,500.
Bank Reconciliation Statement