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How do I set up a 'Petty Cash' ledger that is outside the UVS calculations?

Traditional paper based Investment Club book keeping, involved the use of a Petty Cash ledger for the payment of sundries. Basically each month, investment club members would either transfer a percentage or fixed amount of their monthly subscription into a Petty Cash ledger, which was not included in Unit Valuation System calculations. The reasons for adopting a Petty Cash ledger approach, was to ensure that the Unit Value only reflected investment performance; for example historically if a payment was required for stationary, if that payment was made out of a ledger that was included in the Unit Valuation System calculations, then this would result in a decrease in the clubs assets. If the associated number of units in circulation was consistent before and after the expense deduction, then the net effect would be a reduction in the unit value. If however the stationary payment was made out of a Petty Cash ledger that was not included in the Unit Valuation System, then the unit value would not be decreased as the asset value in the Unit Valuation System ledgers did not change.

The alternative method for managing non-trading related expenses, is to use Unit Cancellation. The basic premise behind Unit Cancellation is that all expenses are paid out of the one account, such as a bank account, and if the expense is not related to trading performance, when you deduct the expense from the total asset value, you reduce the number of units in circulation accordingly. The net effect of using Unit Cancellation is that the unit value remains consistent when you reduce the asset value while paying the expense.

Before we explain how to set up a Petty Cash ledger, we strongly recommend that you adopt an approach based on Unit Cancellation. Simply because most private investors and investment clubs have one bank account for receiving and paying expenses from and then a broker account for trading. The use of a Petty Cash ledger involves creating a subset of accounts typically within your bank account, therefore when you are going through your bank statements, you have to try and keep track of how much money was moved into an imaginary Petty Cash ledger. A much simpler approach is to have one ledger for your trading bank account and another ledger for your broker account. Then simply input the transactions into a 'Bank Account' and 'Trading Account' TimeToTrade ledgers as they occur in each account. If you wish to pay an expense, or receive an income that should not alter the unit value, then do so using unit cancellation or unit addition. When you are then balancing your accounts, you simply have to cross check what you have entered into TimeToTrade with your bank and brokerage statements.

If you are still determined to set up a Petty Cash ledger then please complete the following steps:

Step 1: Create a Petty Cash Ledger

Firstly click on the Accounts tab and create a new ledger called 'Petty Cash'. To do this start by clicking on the 'add/edit' button on the Ledgers tab as illustrated:

Petty Cash 1-1.png

Now enter the Petty Cash ledger details, by giving the Petty Cash ledger a title; then select the currency that is associated with the ledger; if you want the Petty Cash ledger to be excluded from the Unit Valuation System calculations, un-tick the 'uvs' check box as illustrated in the following screen shot:

Petty Cash 1-2.png

Step 2: Change your settings

When you have created the Petty Cash ledger, click on the 'settings' tab in the 'Accounts' section of the navigational tab bar. In the second line of the Settings page, enter the fixed or percentage brokerage that you would like to charge and then select the ledger that you would like to have the brokerage charges paid into. In the following screen shot example, £5 will be deducted as brokerage from club member subscriptions and paid into the 'Petty Cash' ledger:

Petty Cash 1-3.png

When you finished click on the 'update' button.

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