Imprest system What is the imprest system?

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An imprest system of petty cash can also help regulate small expenses and reduce administrative burdens. It allows for better reconciliation of petty cash balances while also keeping the system quick and simple. Imprests may also be used to cover employee payroll, dividends, employee travel, and bonuses. After these outgoing expenses are paid, the fund is typically reimbursed by capital from the company’s primary bank account.

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. The Imprest system is an accounting system that’s used to track how your business is spending cash. In most cases, Imprest systems are used to account for petty cash (a small amount of money used for expenditure on smaller items, i.e. office supplies, catered lunch, cards for customers, etc.). The key feature of the Imprest system is the fact that all expenditures must be documented.

At any point in time, the cash held plus the value of the petty cash vouchers for expenses paid should be equal to the original fixed imprest petty cash amount. Under this imprest system of petty cash book, the head cashier provides a fixed amount of money to the petty cashier in advance for meeting expenditure of a particular period. Petty cash is a current asset and should be listed as a debit on the company balance sheet. To initially fund a petty cash account, the accountant should write a check made out to “Petty Cash” for the desired amount of cash to keep on hand and then cash the check at the company’s bank. For simplicity and to maintain proper control over cash, it is best to only use the imprest petty cash fund to deal with cash expense payments. Self-checking account where a fixed balance is maintained by regular replenishments and used for paying small, routine operating expenses.

As can be seen this journal effectively transfers the amount of 100 from the cash account to the petty cash account. For the most part, every time a person drinks a cup of coffee at their office of business, it is likely that the funds for that coffee came from an imprest account. If a company decides that it is going to have an executive board meeting one day and provide a catered lunch for all of the members of the board, then it probably came from an imprest account. The imprest account exists for the sole purpose of removing the hassle from the purchases and spending on less important necessities of the business on a daily basis.

  1. Since the requested check is drawn on the organization’s checking account, the Cash account (not the Petty Cash account) will be credited.
  2. Impressions can also be used to fund salaries, benefits, workplace travel, and incentives for workers.
  3. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting.
  4. In this case the calculation of the replenishment amount is as follows.
  5. These vouchers are crucial for tracking expenses and petty cash payments.
  6. The check should be cashed at the company’s bank and the cash placed back in the petty cash safe or lock box.

These accounts contain a fixed amount of on-site cash that can be used to repay employees and pay for minor expenses. As money is withdrawn from the account, it is replenished to the pre-established funding level. For example, if a company’s biweekly payroll is $2,000,000, this amount will be present in the imprest account when checks, or electronic funds, are transferred to employees. The account is subsequently replenished from the company’s primary bank account prior to the next payroll cycle. Due to the rise of electronic transactions, the imprest system is becoming less common.

Similarly, it will remove any receipts during the period from the replenished amounts. Cash in the bank is any cash that companies hold in their bank accounts. Companies may have several bank accounts where they can keep their cash for safekeeping. Most large transactions that include the transfer of cash occur through bank accounts. However, companies may also need cash to pay for daily operations or revenue expenditures. Imprest funds can help companies make payments that would otherwise be very difficult to disburse through normalized payment procedures.

This unique feature of the imprest system of petty cash is one of its most important advantages as it allows spot checks on the petty cash fund at any point in time. Imprest system does not support spending over the petty cash float either. Lastly, the imprest system is of limited use if a company does not have a proper internal controls system. One of the many ways that we can assist in accomplishing this is through analyzing and addressing risks with our proprietary technology that performs a Risk and Controls Matrix (RACM) health check. The main feature of this system is the need to document all expenditures. Doing so is an excellent way to maintain a high level of control over cash disbursements.

How will the decline of cash affect expenses?

Do not utilize this fund for any important financial matters such as Accounts Payable or paying off Outstanding Debt. This imprest account is created for the sole reason of taking care of the less crucial aspects of the organization. One common alternative to a typical imprest petty cash fund is to simply reimburse employees in their pay cheque.

Where does the word « imprest » come from?

Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax’s permission. Imprest holders may recoup their imprest from time to time when the amount is almost or completely exhausted. All imprest holders shall keep a Register showing the amount received as imprest and how it has been used. The Register shall be forwarded to the Directorate of Internal Audit for examination whenever the imprest is being recouped or retired.

Imprest system key features

It uses a petty cash float and a custodian to ensure that outgoing cash is balanced with corresponding receipts. At the end of the month the custodian who is in charge of the imprest expense fund reconciles the imprest float. The remaining cash is counted alongside any receipts that have accumulated. Any missing cash that has been taken out of the float to pay for an expense is then topped up ready for the next period. This is usually per month, but it can be any period that suits the business’s requirements.

The imprest fund cashier (the person who keeps track of the petty cash) is responsible for checking the imprest account periodically. So this account creates a situation in which you can purchase inexpensive aspects to the business without any fuss. An imprest account holds “imprest,” or funds set aside for the purpose of paying for small transactions, reimbursements, and incidental purchases. A standing imprest account maintains a fixed balance replenished after a certain amount of expenses are paid or at pre-determined intervals based on a sufficient pattern of spending.

The imprest system tracks small disbursements of cash for approved, incidental expenses. At pre-determined intervals—such as annually, monthly, or weekly—or when the account is low, businesses replenish their imprest account up to the approved amount using the business’s primary capital. As can be seen the petty cash fund, which originally contained the imprest money of 100 in cash, now contains two petty cash vouchers for a total of 65, and the remaining cash held of 35.

Establishing The Imprest Account

When petty cash is used for business expenses, the appropriate expense account — such as office supplies or employee reimbursement — should be expensed. Most companies keep a small amount of cash on hand to pay minor business-related expenses that don’t warrant the writing of a check or use of the corporate credit card. During an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers. At the end of the period a petty cash reconciliation is carried out, and the cash spent is reimbursed to restore the imprest petty cash fund balance back to its original fixed amount. The imprest petty cash system is a method of accounting for petty cash expenses. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established.

The imprest system works by allocating a set amount of cash to an account or ‘float’. This float is a standalone fund that’s used to pay out cash for small, incidental expenses. This could be money for coffee for the staff break room, or any other day-to-day cost. When money is taken out of the float to pay for an expense, it is exchanged for a receipt. But, with the rise of electronic payments and expense management it’s somewhat losing its relevance.

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