Imprest: Definition And How It Works

When the money in the petty cash fund falls to a certain threshold, the custodian would exchange the receipts for additional cash. Effective management of an imprest account can lead to efficient cash management. It helps businesses save time, reduce expenses, and eliminates potential frauds. If you are a business owner, consider setting up an imprest account to manage petty cash expenses efficiently and avoid any unnecessary financial concerns.

  • The imprest system is most commonly used to keep track of petty cash payments.
  • To determine the initial balance for an Imprest account, the amount of cash transactions must first be taken into consideration.
  • Similar to petty cash, imprest should not be used for material expenses such as utilities or to purchase assets for the firm.
  • In as much as the Imprest system can be used inappropriately by employees if not taken care of.

Imprest is simply an accounting model used in business to keep track of how funds are being spent on expenses. Imprest accounts are used by various industries to manage their finances and maintain accurate records. Let’s explore some examples of how imprest accounts are used in different sectors. Promptness in maintaining an imprest account offers a financial advantage that reduces overhead costs and run-time delays. On failing to reconcile or replenish the accounts within designated timelines may result in overdrafted accounts damaging credit ratings and penalty charges. Periodical checking of records ensures accurate accounting and helps adjust budgets if required.

Accounting Ratios

Because Imprest accounts pay out roughly the same amount of cash on a regular basis before they’re automatically replenished, it’s much easier to flag discrepancies and detect employee fraud. Put simply, you’ll gain much more visibility into your petty cash balances as well as how that cash is being used. “Imprest” comes from the medieval Latin “imprestare,” which means “to lend.” Today, the word lives on with several specific usages. First, it refers to a small advance of funds used for cash expenses, replenished after each use.

Second, an imprest account (synonymous with imprest system) is a way to control expenses. You have to create a fixed account that has documentation with the sole purpose to replenish that account to the fixed level. 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. The system operates on the principle of replenishment, whereby the petty cash fund is maintained at a constant level by reimbursing only the amount spent.

  • A petty cash fund is a small reserve of cash that is used to cover incremental expenses.
  • Any shortfalls may need to be replenished by the guardian of the float, usually a bookkeeper, from their resources.
  • Put simply, you’ll gain much more visibility into your petty cash balances as well as how that cash is being used.
  • To set up an imprest account, you will need to determine the fixed amount to be kept in the account.
  • Not only do credit cards offer electronic documentation, but they don’t require you to replenish the funds in the account, which means that they’ve become the preferred option.

When a payment is made, the custodian hands out cash and replaces it with a voucher that states the purpose of the payment. In essence, expenses are recognized when new cash replenishments are made to the petty cash fund from the company checking account. When cash is paid from the checking account, the entry is a debit to the various expenses for which receipts are being supplied by the petty cash custodian, and a credit to the cash account. It is important to realize that 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. If small amounts of cash are received by the business during an accounting period, they should not be included in the imprest petty cash system, but banked separately into the cash (checking) account.

Any required corrective actions resulting from the review of requests should be documented, retained and followed up on at the earliest available time. 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. Schedule a demo with us today and learn all the money-saving features of Happay. It should also be known that the Imprest system of any business provides a way for expenses to be cleared up efficiently without the business facing any troubles. This Is one of the basic benefits of the imprest system in the sense that it helps to drastically reduce fraud risks.

As far as Imprest Accounting goes, petty cash in an imprest account is not overly difficult to account for and keep track of. This creates an opportunity for convenient access to the cash for small necessities, such as printer paper or printer ink. While at the same time, it also makes it easy to replenish the fund as well. Create he account format by simply debiting the petty cash fund while crediting cash to the company account. 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.

What Is a Petty Cash Fund?

Under the standard imprest system, the employee presents a receipt and receives a cash reimbursement in return. In the case of an expense advance, the employee requests the funds for an expense first, and presents the receipt later. This comes with the added headache of reimbursing employees for their expenses, which we’ll cover later. Unlike the accrual accounting system which recognises expenses as they happen, within the imprest system, expenses are recognised when cash replenishments are made to the imprest account.

What Is Imprest System?

At the end of a specific amount of time, companies must reconcile their petty cash accounts. Usually, the management looks for authorized vouchers for any payments made through petty cash. Once they reconcile the amounts, companies will reimburse the petty cash account from their bank accounts. The imprest amount is the fixed amount of cash that is presumed to be located in a petty cash box. For example, the initial funding of a petty cash box is $300, and this amount is recorded in the corresponding general ledger account for petty cash. This amount does not change in the general ledger, even though the amount of cash in the petty cash box will gradually decline as it is paid out and replaced with receipts.

Imprest system – What is the imprest system?

Also, documentation and reconciliation are a breeze while using credit cards for petty cash payments. With so many advantages on its side, credit cards are the best option for petty cash management. If you are looking for an industry leader who can make petty cash management in your firm effective and robust, Happay is your best bet.

What is the Imprest Amount?

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 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. At any point in time, the cash held plus the value of the petty cash vouchers for account statement expenses paid should be equal to the original fixed imprest system amount. To maintain an imprest account, regular monitoring is required to ensure that the balance is always correct. The account should be audited regularly to keep track of all expenses and to ensure that the account is being used properly. Additionally, the account should be properly documented and all transactions should be recorded.

An imprest account is created by placing a set amount of funds in a cash box. This box is then used to make small payments such as office supplies, postage, or other minor expenses. Once the funds in the petty cash box have been withdrawn, a request for additional funds can be made, which triggers the replenishment of cash in the cash box with the original amount. This system ensures that the cash available in the cash box is never excessively large but is always at a level sufficient to meet daily expenses.

Similar to petty cash, imprest should not be used for material expenses such as utilities or to purchase assets for the firm. 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. The most significant advantage of an imprest cash account is its role in reducing unauthorised spending. Since all these funds are reserved for specific purposes, the chances of unauthorised expenditures are significantly less.

When the petty cash box is replenished, the cash comes from the regular cash account, rather than the petty cash account, so the imprest amount remains the same. The imprest balance is the amount of cash stated in the general ledger for the petty cash account. Instead, when cash is issued to replenish a petty cash box, the debit is to the expenses for which cash was paid, while the credit is to the general cash account.

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