Every office needs a little cash for bus fares, tea, postage and small repairs. Paying each of these by cheque would waste time, so the business keeps a small amount of cash in a tin and lets one person spend it. Petty cash is one of the easiest assets to lose or steal, so the way it is given out, recorded and replaced is tightly controlled.
This topic explains petty cash, the imprest system, the petty cash book and its analysis columns, the ledger entries, and how a petty cash book differs from the main cash book.
The examiner treats petty cash and the imprest system as a full topic. In the 20 diets reviewed, a petty cash question appeared in about one diet in five: a 20-mark question to write up a petty cash book (November 2018), a 10.5-mark part (November 2014), and 6-mark explanations of how a petty cash book operates (November 2021 and November 2022), with Section A items on the imprest.
The extra material needed for those questions is given here and labelled as background. Read the topic on the cash book and banking procedures first. The next topic covers bank reconciliations.
In 30 seconds
Petty cash is cash, in notes and coins, held to pay for small items of expense where paying by cheque is less convenient. It is kept in a lockable tin by a petty cashier or Imprest holder, who pays out only against an invoice or a signed Petty cash voucher. Under the Imprest system a fixed amount, the float, is set.
At any time, the cash in the tin plus the vouchers equals the float. The petty cash book is a Book of prime entry with analysis columns. Periodically the expense totals are posted to the ledger, and cash equal to the total spent is paid in to restore the float: Dr expense accounts, Cr Bank. The petty cash balance is always a debit or nil.
Petty cash and how it is recorded
Petty cash is cash, in notes and coins, held by a business to pay for small items of expense where it is more convenient to pay in notes and coins than through the bank account. Examples are bus and taxi fares, and tea and coffee for the office.
Each petty cash payment has two effects. There is an Expense, and there is a Reduction in the asset petty cash. In the main ledger the entry is:
Dr Office expenses (or the right expense account), Cr Petty cash
The amounts are usually small, but petty cash is among the easiest assets to steal or lose. Responsibility for it is normally given to an accounts clerk. The clerk keeps a balance of petty cash in a Lockable tin and pays out only when given either an Invoice for an amount already spent or a signed note acknowledging receipt of the cash, a Petty cash voucher.
The clerk also keeps a Petty cash book, which is a book of prime entry. It is summarised periodically and posted to the general ledger.
The imprest system
A commonly used petty cash system is the imprest system. A fixed amount, the Imprest or Float, is set, for example ₦100,000. At any time the petty cash balance plus the total of invoices and petty cash vouchers in the tin equals the imprest amount. Periodically the supporting documents are removed and cash equal to their total is paid in to restore the imprest in cash.
A typical imprest is ₦10,000. At the start of the month the tin holds ₦10,000. During the month ₦600 is paid to Lydia as a reimbursement of something she paid for the business. The tin now holds ₦9,400 and a voucher for ₦600, and 9,400 + 600 = 10,000, which is the imprest. The same test applies at any time and gives the imprest holder a quick check on whether anything has gone missing.
Background. Not every business uses a fixed float. In a non-imprest system the cashier is given a sum that is topped up by whatever the cashier asks for, and the float varies. The imprest system is better for control, because the reimbursement always equals the vouchers, so any difference between the two shows an error or a loss.
The petty cash book
The petty cash book is a book of prime entry kept by the petty cashier. Background: it is laid out as one ruled page. On the left is a Receipts column for money received, either the opening float or a reimbursement. Then come the date, the details, the Voucher number, a Total payments column, and several Analysis columns, each headed by a type of expense.
The headings are chosen by the business and typically include postage, travel, stationery, office expenses, cleaning and sundry. Each payment is written once in the total column and once in the analysis column that fits. The total column equals the sum of the analysis columns, which is a built-in check.
To keep the book:
- Enter the float or the reimbursement received in the receipts column.
- Enter each payment on its own line with the voucher number, in the total column and in the right analysis column.
- At the end of the period, add up the total column and each analysis column. Check that the analysis column totals add up to the total column.
- Deduct the total payments from the cash held to find the balance, which is entered as Balance c/d and brought down on the receipts side as Balance b/d.
- Request a reimbursement equal to the total payments, and enter it in the receipts column. Then the balance brought down plus the reimbursement equals the float.
An example of the layout, for the week used in the worked example below, is:
| Receipts ₦ | Date | Details | Voucher | Total ₦ | Travel ₦ | Postage ₦ | Office ₦ | Stationery ₦ | Cleaning ₦ |
|---|---|---|---|---|---|---|---|---|---|
| 40,000 | 1 Mar | Float received | |||||||
| 2 Mar | Bus fares | 1 | 1,800 | 1,800 | |||||
| 2 Mar | Postage stamps | 2 | 2,500 | 2,500 | |||||
| 3 Mar | Tea and sugar | 3 | 3,200 | 3,200 | |||||
| 3 Mar | Stationery | 4 | 6,400 | 6,400 | |||||
| 4 Mar | Taxi | 5 | 2,200 | 2,200 | |||||
| 5 Mar | Cleaning materials | 6 | 4,100 | 4,100 | |||||
| 5 Mar | Courier | 7 | 1,500 | 1,500 | |||||
| Totals | 21,700 | 4,000 | 4,000 | 3,200 | 6,400 | 4,100 | |||
| 5 Mar | Balance c/d | 18,300 | |||||||
| 40,000 | 40,000 | ||||||||
| 18,300 | 6 Mar | Balance b/d | |||||||
| 21,700 | 6 Mar | Reimbursement from the bank |
Posting to the ledger
The petty cash book is summarised and posted to the general ledger at the end of the period. Background: the postings come from the column totals and the reimbursement.
- Setting up the float. Dr Petty cash ₦40,000, Cr Bank ₦40,000.
- Payments. From the column totals: Dr Travel ₦4,000, Dr Postage ₦4,000, Dr Office expenses ₦3,200, Dr Stationery ₦6,400, Dr Cleaning ₦4,100, Cr Petty cash ₦21,700.
- Reimbursement. Dr Petty cash ₦21,700, Cr Bank ₦21,700.
The net effect is a debit to each expense account and a credit of ₦21,700 to the bank, and the petty cash account returns to its float of ₦40,000. Under the imprest system the petty cash account itself does not change except when the float is raised or reduced.
At the year end the expense account balances are transferred to the statement of profit or loss. Petty cash is shown as a current asset at the amount of cash held. The balance on the petty cash account is always a debit, or nil if the float is withdrawn.
Cash book and petty cash book compared
Background. November 2014 asked for five differences. They follow from what each book is for.
| Point | Cash book | Petty cash book |
|---|---|---|
| Purpose | Records the main receipts and payments through the bank | Records small cash payments for minor expenses |
| Kept by | The main cashier or accountant | The petty cashier or imprest holder |
| Layout | Debit side for receipts and credit side for payments, with discount, cash and bank columns | A receipts column and a payments side with analysis columns |
| Balance | Debit, credit (overdraft) or nil | Debit or nil, never credit |
| Funding | Receives money from customers, owners and lenders | Is funded from the main cash book through a float or reimbursement |
| Limits | None on the size of a payment | A maximum amount is set for each payment |
| Source documents | Cheque stubs, payment vouchers, paying-in slips, receipts | Petty cash vouchers with supporting invoices |
| Checking | Bank reconciliation against the bank statement | Cash in the tin plus vouchers must equal the float |
| Special rules | No special rules of operation | Imprest rules for the float and reimbursement |
Controlling petty cash
Background. An answer on how a petty cash book operates, such as the 6-mark question asked in November 2021 and November 2022, combines the points above with these controls.
- One person, the imprest holder, is responsible for the tin and the book.
- The cash is kept in a lockable tin or safe, and access is limited.
- Cash is paid out only against an invoice or a voucher that is signed by the person receiving it and approved by someone senior.
- A maximum amount is set for each payment, and larger items are paid by cheque.
- The cash in the tin and the vouchers are checked against the float regularly, and a senior person makes surprise checks.
- The reimbursement is made only against the vouchers, and the vouchers are then marked as paid so they cannot be used twice.
The ideas in more depth
Why an imprest system is a control
The float is fixed, so the vouchers must account for every naira paid out. If the cash plus vouchers fall short of the float, something is missing. A system that tops up by whatever the cashier asks for does not give that check.
Petty cash is a book and an account
The petty cash book is a book of prime entry. The petty cash account in the ledger is the asset. The book summarises the payments and the ledger records the totals.
Why the book uses analysis columns
Without analysis columns each payment would have to be posted to the ledger separately. With them, five or six postings cover a week of payments, one for each column total.
The balance is never a credit
A petty cashier cannot pay out more cash than is in the tin. A credit balance means an entry has been made on the wrong side or a payment was missed.
Sources and references
- The layout of the petty cash book, the ledger postings, the comparison with the cash book and the controls are background based on the past-paper questions listed below.
Worked example: petty cash at Ariya Pharma
Scenario. Ariya Pharma keeps a weekly imprest of ₦40,000. On 1 March the main cashier gives the imprest holder ₦40,000. During the week she pays: bus fares ₦1,800 (voucher 1); postage stamps ₦2,500 (2); tea and sugar ₦3,200 (3); stationery ₦6,400 (4); a taxi ₦2,200 (5); cleaning materials ₦4,100 (6); a courier ₦1,500 (7). The analysis columns are travel, postage, office, stationery and cleaning. Required: the petty cash book, the ledger entries, the reimbursement and a proof.
- Analysis.
Travel: 1,800 + 2,200 = 4,000.
Postage: 2,500 + 1,500 = 4,000.
Office: 3,200.
Stationery: 6,400.
Cleaning: 4,100. - Total payments.
1,800 + 2,500 + 3,200 + 6,400 + 2,200 + 4,100 + 1,500 = 21,700.
Check the analysis: 4,000 + 4,000 + 3,200 + 6,400 + 4,100 = 21,700. - Balance.
Cash left = 40,000 − 21,700 = 18,300, carried down and brought down on the receipts side. - Reimbursement.
The main cashier pays 21,700 by cheque, so the float is 18,300 + 21,700 = 40,000 again. - Ledger. Dr Travel 4,000, Dr Postage 4,000, Dr Office 3,200, Dr Stationery 6,400, Dr Cleaning 4,100, Cr Petty cash 21,700. Then Dr Petty cash 21,700, Cr Bank 21,700.
- Proof.
Cash in the tin 18,300 + vouchers 21,700 = 40,000, the imprest.
The proof agrees.
Common mistakes in the exam
- Writing the amounts in the analysis columns only, or in the total column only. Each payment appears in both.
- Failing to check that the analysis columns add up to the total column.
- Reimbursing a different amount from the total spent, so the float is not restored.
- Posting the petty cash balance as a credit.
- Forgetting to name the opposite account beside each entry.
- Treating purchases of non-current assets, such as fans, as petty cash expenses without comment. A large capital item is paid by cheque, or recorded as an asset and not as an expense.
- Answering a question on how the petty cash book operates with a definition only. Describe the float, vouchers, analysis, reimbursement and controls.
Quick revision
- Petty cash: small cash payments, from a lockable tin, against vouchers or invoices.
- Petty cash book: a book of prime entry, with a receipts column, a total column and analysis columns.
- Imprest: fixed float. Cash plus vouchers equals the float at any time.
- Reimbursement equals total payments. It restores the float.
- Ledger: Dr expense accounts from the column totals, Cr Bank through petty cash.
- Petty cash balance: debit or nil, never credit.
- Differences from the cash book: purpose, keeper, balance, funding, limits, documents, checking, rules.
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer.
Section A style: multiple choice
Question 1. Petty cash is used mainly to pay for:
- Large purchases of inventory
- Wages of all staff
- Loan repayments
- Small items of expense
Show the answer
D. It covers items such as fares, tea and postage.
Question 2. Under the imprest system:
- The cashier is topped up by whatever is asked for
- No vouchers are kept
- A fixed float is set and restored by reimbursement
- The float changes every week
Show the answer
C. The float is fixed and the reimbursement equals the total spent.
Question 3. The imprest is ₦10,000 and the vouchers in the tin total ₦2,350. The cash in the tin should be:
- ₦7,650
- ₦2,350
- ₦10,000
- ₦12,350
Show the answer
A. Cash plus vouchers equals the imprest: ₦10,000 − ₦2,350 = ₦7,650.
Question 4. A petty cashier has spent ₦18,400 of a ₦25,000 imprest. The reimbursement needed to restore the float is:
- ₦6,600
- ₦18,400
- ₦25,000
- ₦43,400
Show the answer
B. The reimbursement equals the total spent.
Question 5. The petty cash book is:
- A book of prime entry
- A financial statement
- A control account
- A source document
Show the answer
A. It is summarised and posted to the general ledger.
Question 6. Which document supports a petty cash payment when no invoice is available?
- Credit note
- Petty cash voucher
- Statement
- Delivery note
Show the answer
B. It is a signed note acknowledging receipt of the cash.
Question 7. The analysis columns of a petty cash book allow:
- Each payment to be posted separately to the ledger
- The bank to be reconciled
- Column totals to be posted to the expense accounts
- Discounts to be recorded
Show the answer
C. One posting per column replaces many individual postings.
Question 8. The entry to set up a petty cash float by cheque is:
- Dr Bank, Cr Petty cash
- Dr Petty cash, Cr Bank
- Dr Expenses, Cr Petty cash
- Dr Petty cash, Cr Capital
Show the answer
B. Petty cash is an asset that rises, and bank falls.
Question 9. The balance on a petty cash account can be:
- A debit or nil
- A credit
- Either debit or credit
- Always large
Show the answer
A. A petty cashier cannot spend more cash than is held.
Question 10. Which is a good control over petty cash?
- Several people keep the tin open for use
- Paying without documents
- Never counting it
- One person keeps it in a lockable tin and pays only against vouchers
Show the answer
D. Single responsibility, physical security and documents are the key controls.
Section B style: written questions
Question 11 (10 marks). (a) State FIVE differences between the cash book and the petty cash book. (5 marks) (b) Explain the imprest system and give an example. (3 marks) (c) State TWO documents used in a petty cash system. (2 marks)
Question 12 (20 marks). Ibadan Printers keeps a weekly imprest of ₦25,000 with columns for postage, travel, stationery and sundry. At the start of the week the tin holds ₦3,400 and the main cashier pays ₦21,600 to restore the float. Payments: Monday, stamps ₦1,200 (voucher 1) and a taxi ₦1,900 (2). Tuesday, envelopes ₦2,300 (3) and a window cleaner ₦1,500 (4). Wednesday, bus fare ₦800 (5) and parcel postage ₦2,700 (6). Thursday, printer ink ₦4,600 (7). Friday, tea ₦1,350 (8) and a courier ₦950 (9).
(a) Prepare the petty cash book for the week, with the balance carried down and brought down. (12 marks)
(b) State the ledger entries for the reimbursement and the column totals. (4 marks)
(c) Prove the position at the end of the week and explain why the imprest system helps control. (4 marks)
A further written question
Question 13 (10 marks). (a) Explain to a shop owner how a petty cash book operates. (6 marks) (b) State FOUR controls over petty cash. (4 marks)
Model answers
Show the model answer to Question 11
(a) Any five: (1) The cash book records the main receipts and payments through the bank, and the petty cash book records small cash payments. (2) The cash book is kept by the main cashier and the petty cash book by the petty cashier. (3) The cash book balance can be debit, credit or nil, and the petty cash book balance only debit or nil.
(4) The petty cash book is funded from the main cash book and the cash book is not. (5) A maximum is set for each petty cash payment, but not for the cash book. (6) Petty cash is supported by vouchers and the cash book by payment vouchers, cheque stubs and paying-in slips.
(7) The cash book is checked by a bank reconciliation and the petty cash book by comparing cash and vouchers with the float.
(b) Under the imprest system a fixed float is set, and cash plus vouchers always equals it. Periodically cash equal to the total spent is paid in to restore the float. For example, with a ₦10,000 float, if ₦4,000 has been spent, the tin holds ₦6,000 and vouchers for ₦4,000, and ₦4,000 is paid in.
(c) A petty cash voucher and the supporting invoice (or a receipt).
Show the model answer to Question 12
(a) Petty cash book (₦).
- Receipts: balance b/f 3,400 and cash received 21,600, total 25,000.
- Payments.
postage 1,200 + 2,700 + 950 = 4,850. - Travel 1,900 + 800 = 2,700.
- Stationery 2,300 + 4,600 = 6,900.
- Sundry 1,500 + 1,350 = 2,850.
- Total payments.
4,850 + 2,700 + 6,900 + 2,850 = 17,300, which also equals 1,200 + 1,900 + 2,300 + 1,500 + 800 + 2,700 + 4,600 + 1,350 + 950. - Balance carried down.
25,000 − 17,300 = 7,700, brought down on the receipts side.
(b) Ledger. Dr Postage ₦4,850, Dr Travel ₦2,700, Dr Stationery ₦6,900, Dr Sundry ₦2,850, Cr Petty cash ₦17,300. Reimbursement: Dr Petty cash ₦17,300, Cr Bank ₦17,300.
(c)
- Cash in the tin ₦7,700 + vouchers ₦17,300 = ₦25,000, the imprest.
- The imprest system helps control because the vouchers must account for all the cash paid out, so any shortfall shows at once.
- The reimbursement is for the exact amount spent.
Show the model answer to Question 13
(a) The business sets a fixed float, the imprest, and gives it to one person, the petty cashier, to keep in a lockable tin. The cashier pays out only against an invoice or a signed petty cash voucher. Each payment is entered in the petty cash book in the total column and in the analysis column for its type of expense.
At the end of the week or month the columns are totalled and the analysis columns checked against the total. The balance is found, the main cashier pays in cash equal to the total spent, and the float is restored. The column totals are posted to the expense accounts in the ledger.
(b) Any four:
- one person responsible
- lockable tin
- payment only against vouchers or invoices approved by a senior person
- a maximum amount for each payment
- regular and surprise checks of cash plus vouchers against the float
- vouchers marked as paid after reimbursement
Pathfinder on Petty cash book and the imprest system
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
From the previous syllabus. Asks for five differences between the cash book and the petty cash book.
Revise first: Cash book and petty cash book compared
From the previous syllabus. Asks you to prepare a petty cash book for the month, from a company that maintains a float, with columns for stationery, trade expenses and sundry purchases.
Revise first: The petty cash book
From the previous syllabus. Asks you to prepare a weekly petty cash book with an imprest float of ₦20,000 and columns for postage and telephone, travelling, office expenses and electricity (16 marks), and to state how the expense column balances are treated in the ledger (4 marks).
Revise first: The petty cash book
From the previous syllabus. Asks you to explain to a business owner how a petty cash book operates. The same question appears in both diets.
Revise first: Controlling petty cash
From the previous syllabus. Asks what an imprest system is.
Revise first: The imprest system
From the previous syllabus. Asks for the name of the fixed amount of money given to a petty cashier at the beginning of a period.
Revise first: The imprest system
An item on the imprest system or the petty cash book appears in some diets. It asks for the meaning of imprest or float, or the entries for a reimbursement. Check Section A of every diet you practise.
Revise first: The imprest system
Source: ICAN Pathfinder, Financial Accounting. Diets covered: November Diet, 2014, November Diet, 2018, March/July Diet, 2020, November Diet, 2021 and November Diet, 2022 (all previous syllabus). Diets before November 2014, and November Diet, 2024 onwards, are not covered here.
Spotted a mistake? Tell us and we will check it.
