False. The balance of the petty cash book is not transferred to the cash book on a regular basis.
The petty cash book and the cash book are separate accounting records used to track different types of cash transactions:
- Petty Cash Book: The petty cash book is a subsidiary book used to record small, day-to-day cash expenses made by a business. It is maintained by a designated petty cash custodian and is typically used to handle minor expenses that do not warrant a check or formal payment. Petty cash transactions are usually of low value and are related to items like office supplies, postage, refreshments, or other miscellaneous expenses.
- Cash Book: The cash book is the primary book of entry for all cash and bank transactions of a business. It records all cash receipts and cash payments, as well as bank transactions. The cash book is an essential part of the double-entry accounting system and is used to ensure that all cash and bank transactions are accurately recorded and posted to the appropriate ledger accounts.
Since the petty cash book and the cash book serve different purposes and track different types of cash transactions, there is no regular transfer of balances between the two. Instead, the petty cash book is periodically replenished with a fixed amount of cash by the company’s finance department or another authorized individual. When the petty cash fund is replenished, the custodian provides receipts and documentation for the petty cash expenses incurred during the period, and the cash is topped up to the original fixed amount.
The periodic replenishment of the petty cash fund ensures that the petty cash balance is maintained at a constant level while still allowing for the recording and tracking of small cash expenses. The cash book, on the other hand, continues to record all other cash and bank transactions as they occur.
In summary, there is no regular transfer of balances between the petty cash book and the cash book. Instead, the petty cash fund is replenished periodically, and the cash book continues to record all cash and bank transactions for the business.