Petty Cash Journal (Grade 10 NSC Matric Accounting): Revision Notes
Petty Cash Journal
What is a petty cash journal?
A petty cash journal is a subsidiary journal used by businesses to keep track of small cash payments. These are the everyday minor expenses that occur in running a business, such as buying postage stamps, stationery, or paying for cleaning services. Think of it as a detailed record book for all the small amounts of money spent from the petty cash box.
Each time money is spent from petty cash, the person responsible (called the petty cash cashier) must write out a petty cash voucher. This voucher acts as proof that the money was spent and explains what it was used for. Both the petty cash cashier and a senior manager must authorise these payments to ensure proper control over the business's money. Where possible, businesses should attach external receipts or invoices to these vouchers as additional proof of the expense.
The petty cash voucher is the source document for all petty cash transactions. Without a properly completed and authorised voucher, no payment should be made from petty cash. This creates a clear paper trail and helps prevent unauthorized spending.
Understanding the structure of the petty cash journal
The petty cash journal follows a specific format that helps organise information clearly. Let's break down the main components you'll find in this journal:
Journal identification and reference details
At the top of each petty cash journal page, you'll see the name of the subsidiary journal itself (Petty Cash Journal), the name of the business, and the month for which the journal records transactions. There's also a folio reference number for the Petty Cash Journal, which helps with cross-referencing when posting to other books.
Recording transaction details
The journal includes several columns that work together to create a complete picture of each transaction:
Document and date columns: The "Doc" column records the petty cash voucher numbers issued for purchases. These vouchers should be numbered sequentially to maintain good record-keeping. The "Day" column shows the specific date when each transaction took place.
Details column: This section describes what was paid for from the petty cash. Clear descriptions help anyone reviewing the records understand where the money went.
Folio and debtor information: When a payment is made on behalf of a debtor (a customer who owes the business money), the folio number from the Debtors Ledger is recorded. This is important because the business needs to recover this money from the customer. These entries are posted to the Debtors Ledger on a daily basis to keep customer accounts up to date.
Understanding the amount columns
The petty cash journal uses several columns to categorise and total the money spent:
Petty cash column: This shows the total amount paid out for each transaction. Every amount recorded here represents money leaving the petty cash box.
Analysis columns: These are special columns for expenses that occur frequently. The most common analysis columns are for Postage and Stationery. When you spend money on these items, the amount goes in both the main petty cash column and the relevant analysis column. This dual recording helps the business track how much is being spent on each type of expense.
Think of analysis columns as "popularity charts" for your expenses. If certain types of spending happen often enough, they get their own dedicated column for easier tracking and analysis.
Sundry account: Not every transaction fits neatly into the analysis columns. When something unusual is purchased, or an expense doesn't have its own dedicated column, the amount is recorded in the sundry account section. This section has three parts: the amount spent, a folio number indicating where it will be posted in the General Ledger, and details explaining what the purchase was for.
The imprest system explained
Most businesses operate their petty cash using what's called an imprest system. This is a clever method that makes managing petty cash much simpler and provides good internal control.
In an imprest system, the petty cash box starts each month with a fixed amount of money. For example, if your business decides that R500 is the right amount for petty cash, this becomes your standard opening balance. Throughout the month, the petty cash cashier uses this money to pay for small expenses, recording each payment in the petty cash journal.
The Key Principle of the Imprest System:
The opening balance must equal the closing balance every month. This means at the end of the month, the business restores the petty cash balance back to the original starting amount. If you started with R500 and spent R658 during the month, you'd need to request R658 from the head cashier to bring the balance back to R500.
The head cashier provides this money by writing a cheque for cash. This cheque is recorded in the Cash Payments Journal (CPJ) with "Cash" written as the recipient. The cheque is then cashed, and the money goes into the petty cash box. In the General Ledger, this amount appears on the debit side of the petty cash account, increasing the balance.
Sometimes businesses don't wait until the end of the month to restore the balance. If the petty cash box runs low before the month ends, the petty cash cashier can request additional money from the head cashier at any time. This ensures there's always enough cash available for small purchases.
Recording and posting petty cash transactions
When recording petty cash transactions, it's important to understand how information flows from the journal to the ledgers. The petty cash journal acts as a book of first entry, meaning transactions are recorded here before being posted elsewhere.
For transactions involving debtors, posting happens daily. This ensures that customer accounts in the Debtors Ledger are always current. The folio number from the Debtors Ledger is written in the "Fol" column of the petty cash journal to show where the information has been posted.
At the end of the month, the totals from the analysis columns and sundry account are posted monthly to the General Ledger. The folio number in the sundry account section indicates exactly which General Ledger account should be debited for each transaction. This system of folio references creates a clear audit trail, making it easy to trace transactions between different books.
Posting Frequency Reminder:
- Daily: Debtor transactions → Debtors Ledger
- Monthly: Analysis column totals and sundry items → General Ledger
This dual timing ensures customer accounts stay current while monthly totals provide accurate financial reporting.
Worked example: Restoring the petty cash balance
Worked Example: Maintaining the Imprest System Balance
Let's work through a practical example to see how the imprest system operates in practice. This will help you understand the process of maintaining the fixed petty cash balance.
The scenario
A business uses petty cash for small transactions and operates on an imprest system with an opening balance of R500. Here are the transactions for June 2011:
- 1 June: The head cashier writes cheque number 210 for R500 and gives this money to the petty cash cashier to start the month.
- 15 June: The petty cash cashier notices the money is running low and requests an additional R200. The head cashier issues cheque for R200.
- 30 June: The month ends. The total payments recorded in the Petty Cash Journal for June amount to R658. The head cashier writes cheque number 267 to restore the petty cash balance.
Recording in the petty cash account
Let's see how these transactions appear in the petty cash account in the General Ledger:
| Date | Details | Fol | Dr (R) | Date | Details | Fol | Cr (R) |
|---|---|---|---|---|---|---|---|
| Jun 1 | Bank | CPJ | 500 | Jun 30 | Total payments | PCJ | 658 |
| Jun 15 | Bank | CPJ | 200 | Jun 30 | Balance c/d | 500 | |
| Jun 30 | Bank | CPJ | 458 | ||||
| 1 158 | 1 158 | ||||||
| Jul 1 | Balance | b/d | 500 |
Understanding the calculations
Let's break down what happened step by step:
Step 1: The R658 on the credit side represents all the payments made during June, as recorded in the Petty Cash Journal. This is the total amount of money that left the petty cash box.
Step 2: Because the business uses an imprest system, the R500 that was in the petty cash box at the start of the month must be the same amount at the end of the month. To find out how much money we need to restore the balance, we work backwards from this requirement.
Step 3: We write the balance carried down (c/d) of R500 and the balance brought down (b/d) of R500. This shows that the petty cash box will start July with R500, just as it started June.
Step 4: Now we total the debit side by adding the money that came in:
This is the amount received from the head cashier during the first two transactions.
Step 5: To balance the account, the debit side must equal the credit side. The credit side totals:
Since we already have R700 on the debit side, we need an additional amount:
Step 6: This R458 is the amount the petty cash cashier must request from the head cashier on 30 June to restore the petty cash balance to R500.
Key Insight: Under the imprest system, you always work backwards from the required closing balance to determine how much money needs to be added to the petty cash box.
Practical application: Recording different types of transactions
To help you understand how different transactions appear in the petty cash journal, let's look at some examples of what might be recorded:
Common Transaction Types:
Stationery purchases: When the business buys paper, pens, or other office supplies with petty cash, this amount appears in both the main petty cash column and the stationery analysis column. For example, buying R80 worth of stationery from SNA Traders would be recorded with R80 in petty cash and R80 in the stationery analysis column.
Postage expenses: Money spent on stamps or postal services follows the same pattern. If R78 is paid for postage at the Post Office, this appears as R78 in the petty cash column and R78 in the postage analysis column.
Payments for debtors: Sometimes the business pays money on behalf of a customer. For instance, if the business pays R180 for carriage fees to TS Transporters for goods sold to a debtor named S Small, this amount must be recovered from the customer. The transaction is recorded with the debtor's folio number so it can be posted to their account in the Debtors Ledger daily. This amount would go in the sundry account column since it's not a regular business expense.
Trading stock purchases: When small amounts of trading stock are bought with petty cash (like R200 worth of goods from AB Wholesalers), this is recorded in the sundry account column because it's not a regular operating expense covered by the analysis columns.
Cleaning and maintenance: Unusual expenses like paying R150 for a cleaner to wash the office windows would also go in the sundry account column, with full details provided so anyone reading the journal understands what the money was spent on.
Analysis Columns vs. Sundry Account:
Use analysis columns for frequent, predictable expenses (Postage, Stationery). Use the sundry account for unusual, one-off transactions that don't fit into regular categories. This keeps your journal organized and makes it easier to spot spending patterns.
Important tips for working with petty cash journals
Critical Checks and Best Practices:
Check your additions carefully: The total of the petty cash column should equal the sum of all the analysis columns and sundry account amounts for each transaction. If these don't match, you've made an error in recording the transaction.
Maintain proper documentation: Every entry in the petty cash journal should have a corresponding petty cash voucher. This creates a clear audit trail and helps prevent fraud or errors.
Watch for debtor transactions: When you see a folio number in the debtor column, remember this means the expense will be recovered from a customer. These need to be posted to the Debtors Ledger immediately, not at the end of the month.
Understand the imprest calculation: Practice working backwards from the required closing balance. Many students find this challenging at first, but with practice, it becomes second nature. Remember: you're always trying to get back to that original starting amount.
Use clear descriptions: The details column should provide enough information for anyone to understand the transaction without having to look at the voucher. Write "Stamps for outgoing mail" rather than just "stamps" to give proper context.
Remember!
Key Points to Remember:
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The petty cash journal is a subsidiary journal used to record small cash payments, with each payment authorised using a petty cash voucher.
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The imprest system maintains a fixed opening balance each month. Money spent during the month is restored at the end so the petty cash box always starts with the same amount.
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Analysis columns (like Postage and Stationery) track common expenses, while the sundry account records unusual or one-off transactions.
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Transactions involving debtors are posted daily to the Debtors Ledger, while totals are posted monthly to the General Ledger using the folio reference system.
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To restore the petty cash balance, work backwards from the required closing balance: add up all money received, subtract from the total needed, and the difference is what must be requested from the head cashier.