Advantages and Disadvantages of Analytical Petty Cash Book

Advantages and Disadvantages of Analytical Petty Cash Book

The main advantage of the analytical system is that it saves time. Also, it will facilitate the accountant or the organization to evaluate the expenses under the dissimilar various heads. This makes comparisons easier as well.

Advantages of analytical petty cash book

Petty cash is a comprehensible and common method of paying for business operating cost. When petty cash is easy to get to employees, it is a suitable way to pay for little purchases

The advantages of analytical petty cash book are given below:

  • Simple Method

It is an easy method of recording petty expenses. The preservation of petty cash book does not need particular knowledge of accounting. Petty cash book maintains records of all petty payments analytically. Petty cash book supplies information regarding petty payments made on dissimilar heads more simply and rapidly.

  • The economy of Time

It requires smaller time in recording and also saves the time of the chief cashier. Petty cash book makes possible for making a comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively.

  • Lesser chances of mistakes:

The petty cash book is checked by the chief cashier at the end of a particular period. This procedure minimizes the probability of mistakes. Petty cash reduces the burden of the head cashier as he is not compulsory to handle petty transactions. Hence, the head cashier will have sufficient time to supervise and manage key cash transactions more efficiently.

  • Frauds can be minimized

Recording transactions on the basis of vouchers and checking of cash book by the main cashier minimizes the chances of fraud.

  • Up to Date

Petty cash book helps in making the major cash book more informative, clean and clear by including only major transactions. Petty cash book helps in making the records of cash transactions up-to-date because of the division of labor in recording cash transactions.

The description of each expenditure is recorded in particulars column but the head of expenditure recorded in divide column the major advantage of maintaining analytical petty cash book is that each payment is not necessary to be posted to the ledger individually.

Disadvantages

Petty cash is mostly an out-of-date and incompetent method and one that businesses should think again using. While suitable for little purchases, petty cash is not a feasible way out to huge expenses. The larger the company, the harder it is to pathway outgoing petty cash, changes, and receipts. This makes the whole petty cash system vulnerable to mistreatment or absolute fraud.

  • Accounting Errors

Your business’s petty cash organism is vulnerable to accounting errors for the reason that of the absence of secondary documentation for tracking the cash.

  • Theft

Without appropriate controls, the business’s petty cash account becomes exposed to theft by employees, and it’s tough for you to know who took the cash.

  • Misappropriation

Petty cash, being a liquid asset, is prone to misappropriation by your employees without sufficient controls.

  • Overspending

Failure to set expenditure limits for every transaction involving petty cash puts you at risk of excessiveness on purchases.

Petty cash is mainly an outdated and inefficient method and one that businesses should reconsider using. While suitable for small business, petty cash is not a feasible way out to a big business. The larger the company, the harder it is to follow outgoing petty cash, change, and receipts. This makes the whole petty cash system susceptible to abuse or outright fraud.

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