What are the disadvantages of the petty cash book? (2024)

FAQs

What are the disadvantages of the petty cash book? ›

Disadvantages of petty cash book

Petty cash's main advantages are that it's quick, convenient, and easy to understand and use. Disadvantages of petty cash funds include their vulnerability to theft and misuse, and the need to monitor and balance them periodically.

A Cash Book offers several advantages for businesses and organizations in maintaining financial records and managing cash transactions efficiently. Here are the key benefits: Transparency: Provides a clear and transparent record of all cash inflows and outflows, aiding in financial accountability.

Wasting resources on activities not in line with business objectives. * Misappropriation of funds. Employees could embezzle the funds for personal expenses or "borrow" cash by removing some at the beginning of replenishment and returning it at the time of reconciliation. * Human error.

Paying with petty cash for low-cost items like postage stamps or office supplies usually requires less time and effort than the government's normal purchasing process. Without adequate monitoring and internal controls, however, petty cash can increase an entity's risk of misuse, theft or fraud.

Disadvantages of Cash Basis of Accounting

1. It provides a less accurate picture of the financial position of the business as compared to the accrual basis of accounting. 2. Business data can be manipulated by deferring payments or late deposit of cheques.

Cash is less secure than a credit card. Unlike credit cards, if you lose physical money or have it stolen, there's no way to recover your losses. Less Convenient. You can't always use cash as a payment method.

The difference between a petty cash book and a cash book is that a petty cash book is used to record small and repeated transactions whereas a cash book is used to record transactions of larger sums.

What should be in a petty cash book? ›

A petty cash book is used as an accounting system for documenting smaller expenses incurred in a company's daily operations. The date, the credited amount, the total value of the current petty cash, and any additional notes are entered in the credit column.

Explanation: Every transaction in the petty cash book of debit or credit will have a respective entry in the general ledger of debit or credit balance. Mostly, the transaction of petty cash is debited while crediting the cash account or the respective account.

Every company has a petty cashier who is responsible for maintaining the petty cash book. Basically, the petty cashier receives money from the head accountant in the form of a cheque. That cheque is then converted to cash in the bank and recorded on the receipts side of the petty cash book.

Appoint a petty cash custodian

A petty cash custodian is responsible for the branch's minor and small cash transactions. Further, they will be responsible for journal entries, record-keeping, and other maintenance of all petty cash transactions.

The amount in petty cash can vary between ₹ 5000 and ₹ 20,000. The actual amount of cash varies based on the size of the branch and the petty cash transactions (frequency). Generally, it would help if you appointed a cashier and a custodian responsible for the petty cash fund.

The purpose of a petty cash fund is to provide business units with sufficient cash to cover minor expenditures. The intent is to simplify the reimbursem*nt of staff members and visitors for small expenses that generally do not Exceed $25.00, such as taxi fares, postage, office supplies, etc.