Small payments and the Petty Cash Journal

The problem petty cash solves

Some payments are too small to be worth an EFT. A staff member needs R60 of stamps, or R95 of cleaning cloths, or R110 for a taxi to deliver a parcel across town. Paying each of those from the business bank account would clog the CPJ with tiny amounts and waste bank charges.

So the business keeps a small amount of actual cash in a locked tin. That cash is called petty cash, and it is still an asset of the business, recorded in a Petty cash account. Money in the tin belongs to the business exactly as money in the bank does.

The imprest system

A tin of cash is easy to steal from, so it is run under strict rules known as the imprest system.

1. The business fixes a float, say R800. That is the amount the tin holds at the start of every month.
2. Every payment out of the tin needs a numbered petty cash voucher signed by the person receiving the money, with the slip or receipt attached.
3. At any moment, cash in the tin plus the vouchers issued must equal the float. That single rule is what makes theft visible.
4. At month end the business pays exactly the amount spent back into the tin, restoring it to the float.

Point 4 is where students slip. The reimbursement is not the float and it is not a round number. It is exactly what was spent, so that the tin comes back to R800 and no further.

Recording it

Payments out of the tin go into the Petty Cash Journal (PCJ). It works exactly like the CPJ, but the money column is Petty cash instead of Bank. Petty cash is an asset and it is going down, so Petty cash is credited with the column total, and the expense accounts are debited with their analysis column totals.

The reimbursement is a bank payment, so it belongs in the CPJ, in a Petty cash analysis column: Petty cash is debited (the tin's asset balance grows again) and Bank is credited.

Worked example. Mokoena Cycle Repairs runs a R800 float. In April these vouchers were issued.

Cast the Petty cash column: 145 + 60 + 95 + 120 + 85 + 110 = R615.

Now the analysis columns. Stationery gets its own column because it repeats: 145 + 85 = R230. Postage is R60. The remaining three (cleaning cloths R95, refreshments R120, taxi fare R110) are one-offs, so they go into Sundry: R325.

Cross-cast: 230 + 60 + 325 = 615. Agrees with the Petty cash column, so the journal is sound.

Two figures follow from this. Cash still in the tin at month end is 800 - 615 = R185, and you should be able to count exactly that. The reimbursement paid from the bank to restore the float is R615, which brings 185 + 615 back to R800.

Core checkpoint: given a float and a set of vouchers, you can total the PCJ, cross-cast it, state the cash that should physically be in the tin, and state the exact reimbursement. You can also say which journal the reimbursement itself is recorded in, and why.