PETTY CASH JOURNAL Lesson
10
Learning Outcomes and Assessment Standards
Learning Outcome 1: Financial Information The learner is able to demonstrate knowledge, understanding and the application of financial information according to generally accepted accounting practice and concepts. Assessment Standards: We know this when the learner is able to: • Define and explain accounting concepts for a sole trader up to the financial statements. • Within the context of the accounting cycle, identify and complete source documents, record the information in the subsidiary journals (books of first entry), post to the ledgers and draw up the trial balance of a sole trader manually and/or by using an accounting package. • Analyse and show the effect of transactions on the accounting equation of sole traders. Learning Outcome 3: Managing Resources The learner is able to demonstrate knowledge and an understanding of the use of different financial and managerial control tools and strategies to manage resources in a responsible manner. Assessment Standards: We know this when the learner is able to: • Discuss the perpetual inventory system, record transactions in the subsidiary journals and post to the ledgers. • Demonstrate knowledge of internal control processes.
Overview
We looked at two kinds of cash journals in Lesson 9, namely the cash receipts journal and the cash payments journal. Now we will discuss the third cash journal, the petty cash journal.
Lesson
DVD
Introduction As we saw in Lesson 9, payments are usually made by cheque or Internet. All cash received is deposited daily or on the next working day. There will be occasions, however, when cash (notes and coins) will have to be paid for minor amounts, e.g. making small donations or buying refreshments or items of stationery, e.g. pencils, erasers, etc. An amount for petty cash payments is determined and a petty cashier is appointed to control payments. The petty cashier keeps the cash in a petty cash box. All payments made from petty cash are recorded in the petty cash journal (PCJ). Petty cash and cash float Whereas petty cash is used for making small payments, the cash float is money set aside for giving change to customers. The amount in the cash float will depend on the nature and size of the business and also the type of product being marketed. Petty cash funds are kept separately from the cash float. Petty cash is stored in a petty cash box, while the cash float is kept in the cash register or till. Both petty cash and the cash float are assets, which increase on the debit side. Source document Payments from petty cash need to be authorised by a senior person in the business. A person who requires petty cash would have to complete a petty cash voucher and have this authorised by the senior person. No payments should be made from petty cash without a completed petty cash voucher. Here is an example of a petty cash voucher:
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ROMERO TRADERS Petty cash voucher Date: 20 May 20.6
No. 41
R Flowers for secretary 30
c 00
Signature: Authorised by:
G. Hambanati T. Khumalo
Imprest system The amount of petty cash required for each month is determined in advance. This amount, which is called the imprest amount, is then given to the petty cashier. Example: Assume that the imprest amount is R500 and the total petty cash payments for the month amounted to R420, which means the petty cash box now has R80. At the end of the month the petty cash will be given R420 to restore the petty cash imprest amount. On the first day of each month the petty cash will therefore have R500 in the petty cash box.
PETTY CASH BOX R500 = payments of R420 PETTY CASH BOX R80 = inflow of R420
PETTY CASH BOX R80 + R420 = R500
Once the petty cash amount has been determined, a cash cheque to that amount will be issued to the petty cashier. The cashier cashes the cheque, ensuring that he or she gets cash in different denominations – R50, R20 and R10 notes and a variety of coins, e.g. R5, R2, R1, 50c, 20c, etc. The entry to record the payment of the cash cheque is recorded in the CPJ. At month-end another cheque for the amount spent (R420) is issued to the petty cashier. The entries are as follows:
CASH PAYMENTS JOURNAL FOR APRIL 20.6 Doc no 0101 D Details Fol Bank
500
CRJ5 Sundry accounts Amount Fol Details 500 Petty cash
0130
01 Cash ………. ………. ………. 30 Cash
420
420
Petty cash
Petty cash is an asset account which increases on the debit side and decreases on the credit side. Example: Prepare the petty cash journal for Jabu’s Corner Shop in January 20.5, using the transactions given in the DVD. Make provision for the following columns: repairs, wages and consumables. Also show an extract of the cash payments journal indicating the relevant entries.
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Solution:
JABU’S CORNER SHOP CASH PAYMENTS JOURNAL FOR JANUARY 20.5 Doc no 024 D Details Fol Bank
1 200
CPJ9
030
01 Cash ………. ………. ………. 31 Cash
Sundry accounts Amount Fol Details 1 200 B4 Petty cash
1 129
1 129 B4
Petty cash
JABU’S CORNER SHOP PETTY CASH JOURNAL FOR JANUARY 20.5 Doc no 45 46 47 48 49 50 51 52 53 D 03 05 08 15 19 20 23 25 28 Details Emol Services B. Baxos Alex Flea Market Moses B. Baxos Alex Flea Market Jays Cash Shop Winston Jabu Petty cash Repairs Wages Consumables
210 300 85 49 150 158 52 50 75 1 129 309 450 137 50 52* 49 150 210 300 85
PCJ9 Sundry accounts Amount Fol Details
158 B3
Trading stock
75 B2 233
Drawings N9 N10
B4
N8
*This can be posted to a packing material account as well.
DR 20.5 Jan GENERAL LEDGER OF JABU’S CORNER SHOP BALANCE SHEET ACCOUNTS SECTION DRAWINGS 20 Petty cash PCJ9
75
B2
CR
TRADING STOCK 20.5 Jan 20 Petty cash PCJ9
158
B3
20.5 Jan
01 31 01
Bank Bank Balance
CPJ9 CPJ9 b/d
PETTY CASH 20.5 1 200 Jan 31
1 129 2 329 1 200
B4 Sundry accounts* PCJ9 Balance c/d
1 129 1 200 2 329
Feb
*or total payments
NOMINAL ACCOUNTS SECTION REPAIRS 20.5 Jan 31 Petty cash PCJ9
309
N8
WAGES 20.5 Jan 31 Petty cash PCJ9
450
N9
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CONSUMABLES 20.5 Jan 31 Petty cash PCJ9
137
N10
Activity 1
Axel, the owner of Axel Stores, has approached you for advice. Susan, the person in charge of petty cash, is always running short of cash around the middle of the month. She keeps the petty cash box keys in her table drawer. People tend to request cash from her when she is busy. When this happens, she gives them the keys and asks them to take the amount required. She expects them to jot down the amount taken. Suggest a plan that Axel can implement to exercise better control over the petty cash. This plan must include an outline of the duties of the person responsible for the petty cash.
InDIVIDuAl
formative assessment
Activity 2
Maureen Weslaap is the petty cashier of MacPhail Dealers. At the beginning of the month she had a cash (imprest) amount of R1 500. Required 1. Prepare the petty cash journal for February 20.8. Use your own document numbers. Provide for the following additional columns: wages, consumable stores, stationery, sundry expenses Post to the general ledger. Balance the petty cash account. Petty cash transactions for February 20.8 02 Bought an invoice book from StarRep Printers for 05 Paid Alvie her wages for casual cleaning, 07 Bought tea bags from Culpar Stores for 10 Paid Alvie her wages for casual cleaning, 11 Owner (Mr MacPhail) used petty cash funds for his own use, 15 Paid Alvie her wages for casual cleaning, 18 Paid for stationery bought from Zandile Stores for Bought wrapping materials from Hyglow Supplies for 20 Paid Alvie her wages for casual cleaning, Received packing material ordered from Culpar Stores. Paid them Bought merchandise (trading stock) from Uptown & Co. for 25 Paid Alvie her wages for casual cleaning, Bought tea bags, coffee and milk from Culpar Stores for 26 Made a cash donation to Sanfe Homes of R 49. R150. R13. R150. R20. R150. R14. R29. R150. R31. R107. R150. R51. R100.
2.
Bought envelopes and stamps (stationery) from Hyglow Supplies for R45. 28 Maureen Weslaap was given a cheque to restore the imprest amount.
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