Short Answer

Petty cash in organizations is managed by giving a fixed amount of money to a petty cashier for small daily expenses. These expenses are recorded in a petty cash book regularly. This helps in keeping proper track of all minor payments.

Most organizations use the imprest system to manage petty cash. Under this system, the amount spent is reimbursed after a certain period, ensuring proper control and accuracy.

Detailed Explanation:

Petty Cash Management

Appointment of Petty Cashier

In organizations, petty cash is managed by a person known as the petty cashier. This person is responsible for handling small day-to-day expenses. The petty cashier records all transactions and keeps the cash safe.

The main cashier or accounts department gives instructions and supervises the petty cashier. This ensures that the petty cash is used properly and only for business purposes.

Fixed Amount Allocation

A fixed amount of money is given to the petty cashier at the beginning of a period. This amount is used to pay small expenses such as stationery, travel, tea expenses, and postage.

The fixed amount helps in controlling spending because the petty cashier cannot spend more than the amount provided. This ensures discipline in financial activities.

Use of Imprest System

Most organizations manage petty cash using the imprest system. Under this system, the petty cashier receives a fixed amount and uses it for small payments.

At the end of a period, the total expenses are calculated. The amount spent is then reimbursed, and the balance is restored to the original amount. This system ensures proper control and regular checking of petty cash.

Recording in Petty Cash Book

All petty cash transactions are recorded in the petty cash book. Each expense is entered with details such as date, amount, and purpose.

The petty cash book may also have separate columns for different types of expenses. This helps in classifying expenses and makes it easier to track spending.

Proper recording ensures that no transaction is missed and that all expenses are properly accounted for.

Use of Vouchers

Every payment made from petty cash is supported by a voucher or bill. The petty cashier collects and keeps these vouchers as proof of expenses.

These vouchers help in verifying transactions and ensure that money is spent only for valid purposes. They are also useful during checking and auditing.

Regular Checking and Verification

The petty cash is checked regularly by the main cashier or accountant. The cash balance is compared with the records in the petty cash book.

This verification helps in detecting any errors or misuse of funds. Regular checking ensures accuracy and transparency in handling petty cash.

Control Over Expenses

Managing petty cash properly helps in controlling small expenses. Since every payment is recorded and verified, unnecessary spending can be reduced.

It also helps in analyzing expenses and making better financial decisions.

Security of Cash

The petty cash is kept in a safe place, such as a locked box. Only the petty cashier has access to it. This ensures the safety of cash and prevents theft or misuse.

Proper security measures are important for maintaining trust and accountability.

Reporting to Management

The petty cashier may prepare reports showing the details of expenses. These reports are submitted to the management or accounts department.

This helps in understanding how petty cash is being used and ensures proper monitoring.

Importance of Proper Management

Ensures Accuracy

Proper management ensures that all small expenses are recorded accurately.

Prevents Misuse

With proper control and checking, the chances of misuse of funds are reduced.

Improves Efficiency

It makes handling of small payments quick and efficient.

Conclusion

Petty cash in organizations is managed through proper planning, recording, and control. The use of a petty cashier, imprest system, and regular checking ensures accuracy and discipline. Effective management of petty cash helps organizations control expenses and maintain clear financial records.