Imprest Account

This system is called the imprest system of petty cash and the amount so granted is termed as a float. The amount of float is decided in such a manner, that it may be sufficient to meet petty expenses, for the stipulated term. Under imprest system, a fixed amount of money known as float is given to the petty cashier to meet petty expenditures for an agreed period which usually consists of a week or month.

Time Value of Money

For example, if the petty cash account in the general ledger has an imprest balance of $100, the account balance will be a constant $100. Any difference in these amounts is entered into the account Cash Short and Over. Subsequently 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. Effective management involves setting up an account, documenting expenses, closely monitoring cash balances, and regularly replenishing the fund to maintain the fixed balance. Adherence to these practices helps prevent unauthorized spending and improves overall control over small expenses.

Imprest Petty Cash

• Companies with an imprest system can easily track any petty cash payments, which doesn’t provide any unauthorized expenditures.
• Thus there is very less chance if funds being misused and utilised for personal purpose.
• The accountant should write a check made out to “Petty Cash” for the amount of expenses paid for with the petty cash that month to bring the account back up to the original amount.
• Since the funds are earmarked for specific purposes, they encourage employees to think carefully about their expenditures, resulting in more prudent spending decisions overall.

The term “imprest” derives from the Latin word imprestari, which means ‘to lend.’ Imprests function through regular replenishments of cash in order to maintain a fixed balance. The most well-known type of imprest is a petty cash account, which is used to cover smaller transactions when it’s impractical or inconvenient to cut checks. Such accounts maintain a set amount of cash on-site, which can be used to reimburse employees and pay for small expenses. Petty cash funds are typically handled by custodians who monitor the account and dispense cash to employees, who in turn furnish business-related receipts. An imprest is a cash account a business relies on to pay for small, routine expenses.

Integration with overall financial management 🔗

• This process occurs at regular intervals or when the account reaches a predetermined threshold.
• When funds are depleted, they are typically replenished using documentation from the company’s primary bank account.
• Overall, the above are some points of importance that highlight the needs of the process in any business and it also ensures that there is a balance between requirement and usage of funds.
• Despite its limitations, an imprest account remains a valuable tool for businesses looking to efficiently manage small expenses and maintain a degree of control over their cash flow.
• Imprest accounts, as used by governments, differ significantly from their counterparts employed by companies for managing petty cash or other minor expenses.
• An imprest system of petty cash can also help regulate small expenses and reduce administrative burdens.

For instance, a business anticipating seasonal activity might temporarily raise the imprest amount. These adjustments should be documented and approved by management, aligning with the organization’s financial objectives. Accounting software can simplify reconciliation by automating calculations and generating reports. Regular reconciliation prevents minor errors from escalating into significant financial misstatements, safeguarding the accuracy of financial statements. Enhance business efficiency by understanding and implementing imprest systems, focusing on balance, reconciliation, and system adjustments.

What Is the Primary Difference Between Accounting Profits and Economic Profits?

Once verified, the company reimburses the exact amount spent, restoring the fund to its original balance. 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. On the other hand, a special advance imprest is for a very particular reason and/or expenses. Imprests have several advantages over other payment methods, such as improved expense tracking and enhanced security.

As can be seen the difference of 10 in this example has been written off to sundry expenses. Furthermore the cash replenishment of 75 increases the current cash held of 25 thereby restoring the petty cash fund back to the original fixed amount of 100. 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. As companies increasingly rely on electronic transactions, the imprest system is steadily falling out of favor. It’s often easier to use a company credit card than an imprest, because the former offers electronic documentation of transactions, and doesn’t trigger a need to replenish any outgoing funds.

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Careful monitoring and documentation prevent overspending, supported by IFRS, which emphasizes adaptability in financial management. In business terms, if a company sets an imprest amount of ₹10,000 for office petty expenses, the petty cashier starts with this exact amount. As they make payments for items like stationery, tea, or minor repairs, they record each transaction. At the end of the period, they present their records along with supporting vouchers. The company then reimburses the amount spent, restoring the petty cash balance to the original ₹10,000. In summary, an imprest account provides businesses with a pre-approved source of funds for handling smaller, regular expenses.

Imprest System Vs Fluctuating Fund

The cash from the cash account replenishes the petty cash fund, and at the same time the journal records the expenses in the correct expense account. Again, it is important to realize that no entry has been made to the petty cash account, this remains fixed at the original imprest amount of 100. A purchasing card (p-card) is another form of a corporate card specifically designed to handle recurring purchases such as office supplies and utilities. It eliminates the need for employees to seek reimbursement through petty cash funds, which can save time and improve overall efficiency. Moreover, p-cards offer greater control over expenditures by imprest balance setting up predefined spending limits, thereby reducing potential misuse of funds.

Let us study the important of this process of imprest system of internal control in detail. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. Our digital content is for information purposes only and does not constitute legal or tax advice. However, they do not replace binding advice and are not guaranteed to be correct or complete. One of the major drawbacks of using an Imprest system is that it causes huge inconvenience for larger expenses.

This method simplifies budgeting and financial planning, adhering to GAAP principles of consistency and comparability. It is used when issuing cheques is not convenient to cover smaller transactions. These accounts contain a fixed amount of on-site cash that can be used to repay employees and pay for minor expenses. An imprest is a cash account that a business relies on to pay for routine, small expenses.

To address this, organizations should provide proper training to petty cashiers and establish clear procedures for recording transactions. Without the imprest system, every small expense would need to go through the regular accounts payable process, creating unnecessary paperwork and delays. Imagine waiting for approval and processing a cheque every time someone needs to buy a pen or pay for parking. The imprest system eliminates this inefficiency while maintaining proper documentation. One of the main benefits of using an imprest account for petty cash is added transparency as to where your cash is going.