Petty cash is a little amount of cash that is reserved on the business premises to pay for minor cash needs. Small companies assign petty cash funds for small, last-minute expenses. Examples of these payments are office supplies, cards, flowers, and so forth.
When petty cash is advanced at the beginning
A detach petty cash account is opened in the ledger. When the dvance is received by the petty cashier petty cash account will be debited and cash account will be credited.
When individual expenses column are periodically totalled
The total of various petty expenses are debited and the petty cash account is credited with the total of the payments made.
The petty cash account will show the balance of cash. This balance will be shown in the balance sheet as part of cash balance.
Example: Record the following transactions in the analytical petty cash book of Mr.Manoharan. Balance the book on 6th May, 2003.
Give Journal entries and post the balances to concerned ledger accounts.
2003 May 1. Received for petty cash payment Rs.1,500
- Paid taxi hire Rs. 250
- Bought stamps Rs. 75
- Paid for carriage Rs. 120
- Paid for Telegrams Rs. 75
- Paid for auto Rs. 125
- Paid for carriage Rs. 300
- Bought revenue stamps Rs. 50
This journal entry should also be used when petty cash is replenished. At month-end, expenditure receipts can be summed and grouped into expenditure categories. The related journal entries would contain a debit to the appropriate cost accounts, such as postage expense and a credit to petty cash.