Financial AccountingModern Cash Management

Present-day Cash Management

Even before the advancement in digitized technologies, most business-to-business transactions were used to be carried out without actually transferring cash and large sums were used to be paid through cheques, bank drafts, etc.

Present-day technologies have made it possible for consumers and businesses to trade and make transactions, without any need to carry actual cash notes. All the payments can be made digitally (e.g. scanning barcodes, swapping credit/ debit cards, paying online, etc.).

Commonly, customers at retail stores and pumping stations don’t need to pay cash, and they just swap their cards or scan codes for the purchases they make. In some places, modern businesses don’t even accept cash anymore, and you have to pay digitally/ online for the purchases you make.

All these technological advancements have significantly decreased the number of cash transactions carried out, and the burden of managing cash over the cashiers has also been reduced.

Petty Cash Book

The advancement in computational and network technologies has resulted in the number of cash transactions having reduced to minimal. However, businesses still need to incur cash for a few expenses. Examples of such expenses are paying for refreshments, reimbursement of conveyance to staff, cartage expenses, etc. Although such expenses are usually low in value, these are frequently incurred, and the number of transactions is high.

Entering these expenses directly into the main cash book will only populate the book/ journal with very small amounts and will increase the amount of work for the cashier as well as the chances of error while recording transactions in the cash book.

Moreover, many businesses have dispersed locations. For example, head offices are located at one site whereas various field offices/ retail shops/ factories, etc. in other cities or multiple locations within a city. The chief cashier is usually stationed at the head office. However, to meet the day-to-day cash requirements of the dispersed location/ site, cash is distributed among site cashiers. Accordingly, accounting records of each site shall be separately maintained for better analysis and accountability.

In the case of the aforementioned dispersed business setups, details of day-to-day cash expenses are recorded in a petty cash book. This will leave the main cash book free and less populated from the unwanted, low-value expense entries. On the other hand, a record of each transaction is available for later verification and analysis.

Like any other journal/ day book, any transaction in a petty cash book shall only be recorded after complete verification from source documents (approved vouchers & invoices, etc.) and these documents shall be saved for later verification.

Advantages of using Petty Cash Books

  • Petty cash books are usually maintained in the department/ function and location other than the finance and chief cashiers for managing and recording day-to-day small expenses e.g. cartage, postage, conveyance, etc. This saves a lot of work and time for the cashier to focus on his work.
  • The establishment of the Petty cash function results in the delegation of responsibilities. Low value but frequent cash expenses are recorded by someone other than the cashier, and the cashier then upon the time of reimbursement of petty cash through the imprest system checks the accuracy of recording each transaction into a petty cash book. This also enables the cashier to verify the recorded transactions against vouchers/ bills etc. This in turn reduces the risk of error and fraud.
  • In petty cash books frequent expenses with small values are recorded, this in return prevents populating the main cash book. Fewer entries in the cash book make it easy to re-check and audit and avoid chances of errors.
  • As petty cash books are being maintained separately by some other than the cashier, it encourages the accountability of the person responsible for the disbursement of petty cash expenses.
  • Recording low-value expenses separately from the main cash book also provides the opportunity to monitor, analyze and control these expenses without the need for higher executives to micromanage day-to-day affairs.

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