The only occasions in which a posting is made to the petty cash account in the general ledger is when the amount of the imprest (petty cash fund) is permanently altered. Unless there are any discrepancies in the fund, the cash needed to replenish the fund is also equal to the value of the expenses paid, https://www.bookkeeping-reviews.com/top-10-free-accounts-receivable-excel-template/ which in turn, is equal to the value of the supporting petty cash vouchers. Leakage of cash in this system can happen either because of expense fraud, theft, or inefficiency in disbursing the cash properly. This is why more businesses are moving towards digital payment systems for petty cash.
Paying these costs with cash is simply impractical and unfeasible in the vast majority of cases. As a result, it’s no surprise that petty cash payments are becoming less and less relevant for businesses, especially larger companies with lots of employees. Under the system, the petty cash fund is maintained at a fixed amount set when the fund is first established.
It allows them to pay out for small expenses at short notice and means they don’t have to withdraw cash from a normal bank account. 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 system amount. Companies keep cash on hand in imprest to pay for incidentals like office supplies, small reimbursements, or other minor expenses.
Paying Expenses from the Petty Cash Fund
One of the most common examples of the imprest system in practice is the petty cash fund; this fund is typically used for minor expenditures such as office supplies, postage, or other small business expenses. The fund is then replenished with the exact amount that was spent during the period, restoring the balance to the predetermined, fixed amount. Imprest is a financial management system, often used by various organizations to effectively control and track small, everyday expenses. The main purpose of the imprest system is to ensure that the organization’s funds are properly managed and accounted for in crucial areas such as petty cash and employee expense reimbursements.
- The cashier replenishes the account frequently to maintain a fixed imprest cash balance.
- 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 system amount.
- After these outgoing expenses are paid, the fund is typically reimbursed by capital from the company’s primary bank account.
- This makes the process of monitoring the expenses simple, and you can easily find a discrepancy and detect expense fraud.
The petty cash is usually stored on the company premises, and the person in charge is called a petty cash cashier. 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 how do i handle workers’ compensation premiums under accrual accounting any outgoing funds. And when the balance reaches near zero, it automatically gets replenished to the same amount. This makes the process of monitoring the expenses simple, and you can easily find a discrepancy and detect expense fraud. Imprest accounts are generally topped up monthly, although this varies from business to business depending on the amount of money they use for expenses.
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Similar to petty cash, imprest should not be used for material expenses such as utilities or to purchase assets for the firm. 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. While the imprest system is still regarded as the best way to deal with petty cash expenses, the reality is that fewer and fewer businesses are using cash.
This is usually per month, but it can be any period that suits the business’s requirements. The cash that’s used to replenish the float comes from the business’s general expenses account. In the petty cash book (not part of the double entry bookkeeping system), the cash received to replenish the fund of 65 is recorded and the imprest fund is now back to its original cash amount of 100. Subsequently at the end of the accounting period the petty cash book is totalled and reconciled, and the petty cash fund is replenished. As can be seen this journal effectively transfers the amount of 100 from the cash account to the petty cash account.
The word is derived from the early Italian or medieval Latin imprestare, which meant to lend. Thus, an imprest now means a small advance of funds used for incidentals, and which must be replenished after use. The imprest system is regarded as the most effective method for dealing with petty cash transactions because it is simple and reliable. Suppose in the example above the remaining cash held had been 25 and not the 35 expected. The remaining cash plus the value of the receipts should always match the total float amount. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month.
The imprest system can be beneficial for organizations of various sizes and industries, as it provides an effective method to track and control small expenses. However, it may not be suitable for every organization, depending on its specific needs and financial management processes. Organizations should evaluate their expense management requirements before deciding if the imprest system is the right fit for them. A petty cash fund is a small reserve of cash that is used to cover incremental expenses. It’s typically used in situations where it’s not worthwhile going through the additional administrative effort of using other payment methods. Despite being the best best option for conventional petty cash funds, the imprest system does have its drawbacks.
What Are the Uses of Imprest Account?
By using the Imprest system, a business ensures that a fixed amount of cash is always available for day-to-day expenses, simplifies fund management, and facilitates tracking of expenses and reimbursements. Petty cash in an organisation is a small amount of money that is used for paying for minor expenses. And the imprest petty cash system is an accounting system that can help you pay and effectively track petty cash expenses in your firm. Moss’s expense management software and corporate credit cards offer businesses of all sizes a better way to handle their money.
With electronic payment methods gaining steam globally, the imprest system is slowly losing its relevance in today’s business world. Most organisations have switched to credit cards for petty cash or ask their employees to pay and reimburse them later. Imprests deter the use of unauthorized spending because the funds are earmarked for specific purposes. This system makes it easier to monitor expenses, flag discrepancies, and ultimately detect fraud.
This is usually accompanied by a petty cash form which outlines the reason for the withdrawal, who has requested it, and when it happened. But, with the rise of electronic payments and expense management it’s somewhat losing its relevance. An organization should consider implementing an imprest system if it frequently handles small, miscellaneous expenses that require quick and easy access to cash. The imprest system ensures that these expenses are monitored and accounted for and reduces the risk of mismanagement or fraud. Petty cash is a small amount of money the organisation uses for minor and incidental expenses.