This amount is used to cover minor expenses and is replenished periodically. The petty cash imprest system of petty cash fund is usually overseen by an employee or department head who ensures that all disbursements are properly recorded and receipts are obtained for each transaction. ABC Ltd will take the money from the petty cash fund, kept aside for this purpose. After the expenses are done, the company will transfer equal amount of money from its bank account to the petty cash book.

Example of the Imprest Petty Cash System

#1 – Efficiency- It ensures there is efficiency in the fund disbursement even though there is no requirement for higher approvals. Such expenses include any purchase of stationery or small office supplies, travelling and entertainment related expense, any repair work, etc. These are such that the amount is very small but required for daily and smooth working of the organization. In addition to funds used by a business, an imprest may also refer to money paid to someone for doing work on behalf of a government.

For instance, purchasing office supplies like staples, reimbursing employees, or covering minor travel costs, such as taxi rides or tolls, can be managed through petty cash. In order to set up an imprest account, a business must first allocate a fixed amount of funds, which is recorded in the company’s ledger. Any disbursement made from the account requires proper documentation, such as receipts, to justify the expenditure. The balance of the fund is then replenished once the outgoing cash has been accounted for and documented. This process helps maintain a consistent balance within the imprest account, making it easier to monitor expenses and detect any potential discrepancies or instances of fraud. A petty cash book is a record that tracks all transactions made from the petty cash fund.

Types of Petty Cash Systems

It helps businesses organise minor expenses, maintain transparency, and ensure accountability. 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.

How to Reconcile Your Imprest Petty Cash Fund

While an imprest system offers a high level of control, it’s arguably inefficient when you consider the amount of paperwork involved relative to transaction size. Not to mention, the imprest system is only as good as the financial custodian overseeing it. If there are mistakes in recording disbursements, the system quickly falls apart. In fact, when cash disappears from a business—whether because of mismanagement, employee theft, or overspending—the imprest account is often where the investigation into this occurrence begins. Imprests have several advantages over other payment methods, such as improved expense tracking and enhanced security.

Not setting the expenditure limits for every nominal transaction can even put an organization at the risk of overspending on purchases. Similar to every financial concept or process, his system also comes with its own set of pros and cons. 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.

• Accurate record-keeping is crucial for tracking petty cash and ensuring it’s used responsibly.
• This person is responsible for overseeing and managing the petty cash fund, ensuring that all transactions are authorized, recorded accurately, and supported with necessary documentation.
• Documenting your Imprest account with receipts helps you to monitor how much money is being spent on incidental expenses, while also keeping you protected from employee fraud.

Step 3: Securing the Petty Cash Fund

The fund is carefully calculated based on historical data, considering the average amount required for these expenses over a given period. Despite its many advantages, the imprest system can also have many disadvantages. 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. The imprest system is an accounting system that companies use to manage petty cash.

• Imprest, in its most common usage, is referred to as the petty cash system.
• 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 fixed petty cash system means there’s a fixed period to spend the money over, and then the fund is always given back the same amount, even if the full amount wasn’t spent.
• This enables them to focus on their core responsibilities, saving time and boosting overall operational efficiency within the organisation.
• This system is particularly useful for larger organisations or those that require a deeper analysis of petty cash expenses.

Once granted, the agency is required to submit a detailed operational plan outlining how the funds will be used. Petty expenses are managed with the set limits of the imprest system, making it almost impossible for the petty cashier to spend more than the petty cash available in the account. The Imprest system eliminates the possibilities of unauthorized spending as the funds are designated for pre-determined purposes. This, in return, makes tracking of expenses and reporting of discrepancies much easier which ultimately aids in the detection and elimination of the possibilities of fraud. 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.

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. By understanding both the advantages and disadvantages of this system, organizations can make informed decisions about whether it’s the right choice for their business needs. Companies keep cash on hand in imprest to pay for incidentals like office supplies, small reimbursements, or other minor expenses.

A proper cash management system can help companies survive in the long run. These may include various procedures that can be a part of a company’s cash management system. Best for businesses of all sizes looking for a simple, controlled way to manage minor expenses. Establish clear policies regarding the types of expenses that can be paid from petty cash and the documentation required for reimbursement. So, the next time you need to log a fancy £9.99 supermarket trifle for the next office birthday, digital petty cash management will turn that trifle into a piece of cake.

What is an imprest system of petty cash?

Smart company cards make spending easier to control, especially when spending limits can be set and adjusted accordingly. A lean and efficient way to manage your small expenses, this system can transform your cash budgeting from static to dynamic. Many of us think there’s no point dealing in wads of notes or the jingling coins in your pocket because vendors simply won’t accept cash. But even after 2020 (the year that cash was supposedly wiped out for good), cash payments actually rose by 400 million in 2022.

The key feature of the Imprest system is the fact that all expenditures must be documented. This gives you a greater degree of control over cash disbursements made by your company. Moreover, the physical nature of petty cash, which is the most common type of imprest system, presents additional challenges. With petty cash, companies must manage and secure a stash of actual currency on site. This can increase the risk of theft or loss, and it may require additional resources for security measures. Additionally, if the cash is not handled properly or mismanaged, it could lead to discrepancies between recorded expenses and actual funds available in the imprest account.

This system helps monitor expenses, flag discrepancies, and ultimately detect fraud. The imprest system is a time-tested approach to managing petty cash that controls small and routine expenses within organizations. Because it is simple, accountable, and efficient, it can also be applied to businesses at any level. An imprest account refers to a petty cash fund that a business maintains to cover smaller transactions, such as office supplies, employee reimbursements, or other minor expenses. 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.