Below is an essay on "Accounting Principle" from Anti Essays, your source for research papers, essays, and term paper examples.
Businesses generally keep small amounts of cash to meet small miscellaneous payments such as entertainment expenses and stationery costs. Such payments are generally handled by a Petty Cash Imprest System whereby an amount of 'Float' is fixed. This is the maximum amount of cash that can be held at any time. Each time cash level runs low, the Petty Cash Imprest is injected with cash by drawing a cheque. The amount of reimbursement is equal to the expenses paid through petty cash since the time of last reimbursement. Petty cash balance after reimbursement reverts to back to the level of the float.
Every time a payment is made through petty cash, it is recorded in the Petty Cash Register (Petty Cash Book) usually by the cashier. When the cashier requests for reimbursement of petty cash, he creates a petty cash voucher detailing the payments made through petty cash during the period since the last reimbursement along with any supporting invoices acting as documentary evidence for the claim. If everything appears in order, the authorized signatory (e.g. operations manager) draws a cheque equal to the amount of expenses detailed in the petty cash voucher.
Petty Cash Imprest System is an effective way to manage small day to day expenses. However, since cash is the most liquid resource of the entity, strong controls over it are necessary to avoid possible misappropriation. Following controls may be applied over petty cash:
• Petty cash must be kept at a secure place (e.g. a cash box).
• Petty cash must be locked away in a safe when not in use.
• Cashier must be responsible to keep supporting invoices in respect of payments made through petty cash.
• Surprise cash counts must be conducted time to time to ensure the accuracy of the cash balance stated in the petty cash register (petty cash book).
• The amount of petty cash float should not be set too high.
Since petty cash register does not form part of the double entry system, payments made through petty...