Petty cash

Question 1

what is the purpose of petty cash

Answer 1

many transactions are made within the business like buying stationary etc which may make it difficult to see substantial payments, so businesses keep an amount of cash on hand

Question 2

where is petty cash kept and who has access to pay out money for petty cash transactions?

Answer 2

petty cash is kept in a lockable tin and only one person has access to it (usually)

Question 3

where does the company get the money for the petty cash?

Answer 3

directly from the bank on not from any type of receipts regardless

Question 4

how would you make a payment through petty cash?

Answer 4

you must remember to take a receipt from the place that you had bought the goods from and show that to the petty cash cashier who will give you a petty cash voucher, this must be completed before the petty cashier can give you money out the till

Question 5

do petty cash vouchers need to be signed?

Answer 5

yes, by the authoriser and the person being paid out of petty cash

Question 6

what are the four things that don’t attract VAT when it comes to petty cash

Answer 6

• food and drink (unless prepared in restaurant or takeaway)
• books and newspapers
• postage
• transport (not taxis or private hire)

Question 7

explain why transport is a tricky subject when it comes to petty cash

Answer 7

travel is not seen as a valid expense to the company, claims for fuel should be very carefully examined and if it was used for business use or private use,

Question 8

when can petty cash be used for travel?

Answer 8

unsocial hours, like working early hours where there is no transport available

Question 9

what is the flat rate from HMRC that the company should contribute per mile

Answer 9

45p

Question 10

can claims for fuel be made and if yes what it the limit of claims?

Answer 10

yes, and its usual to put limits on claims, £25 is the usual amount but this may vary

Question 11

what is the imprest method?

Answer 11

method of operating a petty cash system, so you replace the amount you spent, so when starting with £100 and spending £90 you should top up the next period to £100. meaning that every week will begin with £100 and the number of notes will come back to the imprest amount.

Question 12

what is a non-imprest system?

Answer 12

this is where the cash is topped up when the petty cashier thinks it is needed or it may be a set amount to be put into the tin every week

Question 13

why is the non-imprest system more difficult to control?

Answer 13

as there is no incentive to ensure all that all the money paid back is documented and there is no knowing how much should be in the tin at once.

Question 14

what is the layout for the petty cash book?

Answer 14

(pg.3)the ‘date’, and ‘details’ columns are used for both receipts and payments

Question 15

what is the receipts column used for?

Answer 15

the receipts is the far left, the only entries in this column are the balance bought down after being balanced and the amount of the top up

Question 16

what is the voucher number column used for?

Answer 16

for the voucher number and the same goes for the total column, the total paid for goods or service

Question 17

what is the left side of the petty cash book used for

Question 18

what is the right side of the petty cash book used for

Answer 18

its easier to split up the cash book with payments on the right (analysis) and receipts on the left

Question 19

how to balance the cash book?

Answer 19

(pg.3/4)
- majority of the debit entries will be top ups from the bank so not much detail is needed
- the credit side (right side) will need analysis
- add up totals from total column (= £48.14)
- this is how much is needed to fill it up to the imprest amount again so it will be debited to the petty cash and entered into the receipts column with the detail as ‘cash received’
- to balance the petty cash book we need to the add up all the analysis rows which also comes up to all of the totals added together (48.14)
- since the petty cash book has already been filled up to its imprest amount (50) there will be an entry of the balance c/d to which the amount (50) is entered into the total column
- this means the receipts column balances the total column
- the next entry will be the balance brought down in the receipts column as the imprest amount (50)

Question 20

which accounts will the petty cash book figures be posted to?

Answer 20

despite balancing within the petty cash book we need to balance for the cash book with the respective accounts which are
postage account
cleaning account
administration account and VAT (if needed)
this is basically all the analysis columns
- the cash book will also need a credit entry for the petty cash book top up

Question 21

what is the petty cash control account?

Answer 21

the petty cashbook is used as part of the double entry so it may be preferred to be kept separate from the general ledger as
- it may clutter the general ledger
- errors in the petty cash book will only be seen in the trial balance often at the end of the year which could cause problems in producing put annual accounts

so as it is not being used as part of the double entry it needs a control account this will help find any errors at regular intervals example on pg 6