Learning Outcomes
After reading this article, you will be able to describe how the petty cash imprest system operates, record petty cash reimbursements, and explain the purpose and use of analysis columns. You will be able to post petty cash entries, control the float, and prepare summaries suited to ACCA FA2 requirements.
ACCA Maintaining Financial Records (FA2) Syllabus
For ACCA Maintaining Financial Records (FA2), you are required to understand both the practical recording and the internal control principles behind petty cash systems. Ensure you are confident in the following areas:
- The purpose and operation of the petty cash imprest system
- The process of analyzing, recording, and posting petty cash transactions
- How to restore (reimburse) the petty cash float and account for replenishments
- The use and significance of analysis columns in petty cash records
- How petty cash balances are presented in the financial statements
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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What is the main aim of operating a petty cash imprest system?
- To avoid using the main bank account
- To ensure petty cash expenses are not paid
- To control and account for small cash expenses precisely
- To increase the overall cash float
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In the imprest system, how is the petty cash float restored at the end of a period?
- It is increased regardless of the expenses
- By withdrawing cash equal to the current float
- By reimbursing only the amount spent
- Automatically through accounting software
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True or false? All petty cash payments must be analyzed to specific expense categories in the petty cash records.
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Why is it important to use analysis columns in the petty cash book?
Introduction
Petty cash is used by entities to cover small, routine expenses that are impractical to process through the main bank account, such as office refreshments, local travel, or minor repairs. To ensure proper control and recording of these outflows, most organizations operate a petty cash imprest system.
This article explains the operation of the imprest system, the process for reimbursing the petty cash float, and the use of analysis columns when recording petty cash payments. Accurate recording and control are essential skills for every ACCA FA2 candidate.
Key Term: petty cash imprest system
An accounting arrangement where a fixed amount (float) is set aside for small cash payments. The petty cash balance is regularly restored to the predetermined float by reimbursing the exact amount spent.
Core Features of the Petty Cash Imprest System
Under the petty cash imprest system, a specified float (e.g., $100) is provided to the petty cashier. All expenses paid from this fund are supported by vouchers and receipts. At each reimbursement interval—often monthly—the cashier tallies the vouchers and requests replenishment from the main cash or bank account, restoring the float to its original amount.
This mechanism not only limits the risk of cash loss or misuse but also simplifies control. At any point, the petty cash on hand plus the total of recognized vouchers must equal the float.
Key Term: reimbursement
The process of restoring the petty cash float by transferring an amount from the main account equal to the sum of expenses paid, so the float returns to its original value.
Recording Petty Cash: Reimbursements and Analysis Columns
The Reimbursement Process
At the end of the period, the petty cashier calculates the total spent (supported by vouchers and receipts) and requests this amount from the bank.
Example: If the float is $100 and $76.40 has been paid out, the cashier will submit vouchers total $76.40 for approval and be reimbursed exactly $76.40, returning the float to $100.
The reimbursement entry is:
- Debit the various expense accounts (e.g., Postage, Travel)
- Credit Petty Cash account
On the business’s bank side:
- Debit Petty Cash account
- Credit Cash at Bank account
Analysis Columns in the Petty Cash Book
The petty cash book records each payment with its date, payee, voucher number, amount, and expense type. To make posting to the general ledger efficient and accurate, the petty cash book uses analysis columns, with each column dedicated to a specific expense category (e.g., Travel, Stationery, Postage).
At period end, the total in each analysis column is posted as a lump sum to the relevant expense account in the general ledger, reducing errors and improving control.
Key Term: analysis column
A separate column in the petty cash book used to classify payments by expense type, aiding both analysis and general ledger posting.
Worked Example 1.1
A company maintains a petty cash float of $60. June’s expenses were: Office supplies $17, Taxi fares $14, Staff refreshments $9, and Postage $6. What reimbursement is needed at month end? How will the expenses be posted?
Answer:
Total petty cash spent: $46 ($17 + $14 + $9 + $6).
The cashier requests $46 from the main bank account to restore the float to $60.
The expenses recorded in analysis columns are posted as:
- Debit Office Supplies $17
- Debit Travel $14
- Debit Refreshments $9
- Debit Postage $6
- Credit Petty Cash $46
Worked Example 1.2
Suppose at the end of the month, the vouchers for petty cash purchases total $48. You count the cash in hand and find only $11 remaining, but the initial float was $60. What does this suggest?
Answer:
Expected cash = Float ($60) – Vouchers ($48) = $12.
Actual cash in hand is $11.
The $1 discrepancy suggests an error, such as a misrecorded payment or missing receipt, and should be investigated before reimbursement.
Controls and Good Practice
- Only reimburse against authorized vouchers/receipts.
- Reconcile cash and vouchers to the float regularly.
- Analysis columns facilitate both audit trail and simple general ledger posting.
- All petty cash transactions should align with the imprest principle.
Exam Warning
Be alert to the difference between the amount reimbursed (total spent, restoring the float) and the float itself. Mixing up these figures is a common exam error.
Summary
The petty cash imprest system provides strong control over small cash outflows by limiting the float and enforcing strict replenishment and recording procedures. The use of analysis columns in the petty cash book streamlines ledger postings and ensures expenses are correctly classified. Regular reconciliations and reimbursement are essential to prevent errors and maintain accountability, all of which are critical knowledge areas for the ACCA FA2 exam.
Key Point Checklist
This article has covered the following key knowledge points:
- The nature and function of the petty cash imprest system
- The procedures for reimbursement and restoring the petty cash float
- The recording and use of petty cash analysis columns
- Posting petty cash expenses to the general ledger using totals from analysis columns
- Internal control features provided by the imprest system
Key Terms and Concepts
- petty cash imprest system
- reimbursement
- analysis column