How the Imprest System Simplifies Petty Cash Management B Com Institute

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.

What is meant by imprest account?

Managing small, everyday expenses in a business can be surprisingly challenging. From buying office supplies to paying for minor repairs, these petty cash transactions happen frequently but often get overlooked in traditional accounting systems. Imprest refers to a method of controlling and managing funds, typically imprest balance used for handling small, routine expenses.

The Future of Imprests

Compared to other methods, this is way too quick, simple, accessible, and convenient simultaneously. Suppose in the example above the remaining cash held had been 25 and not the 35 expected. The word ‘imprest’ comes from the Latin root imprestari, which means ‘to lend.’ It signifies a small advance of funds used for incidentals that must be replenished after use. 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.

Maintaining accurate records 🔗

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. Audits verify that transactions align with the account’s purpose and adhere to internal policies and regulatory standards. Regular audits enhance accountability and help identify inefficiencies or irregularities. At the end of the month, the total of these receipts is subtracted from the opening float, and the resulting value should match the remaining amount in the float. Any shortfalls may be addressed by the individual responsible for the float, typically a bookkeeper, using their own resources.

Cash Flow Statement

• However, in business, it could also mean any accessible, liquid business assets available.
• Audits also evaluate whether the replenishment process was conducted accurately and on time.
• 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.
• In the following sections, we will explore the intricacies of setting up an imprest account, its differences from petty cash, and the advantages and disadvantages of using this system.
• This is usually accompanied by a petty cash form which outlines the reason for the withdrawal, who has requested it, and when it happened.

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. Imprest accounts serve as a vital tool in financial management, offering businesses an efficient method for handling minor expenses. They are particularly useful for managing petty cash transactions, ensuring small-scale spending is accounted for and accessible when needed. In essence, expenses are recognized when new cash replenishments are made to the petty cash fund from the company checking account.

• The imprest system transforms what could be a chaotic process of managing small expenses into a structured, controlled, and transparent system.
• For instance, petty cash vouchers should include the date, amount, purpose, recipient, and approving authority’s signature, accompanied by original receipts or invoices.
• As can be seen the difference of 10 in this example has been written off to sundry expenses.
• Organizations establish policies detailing required records, formats, and retention periods to meet legal and regulatory requirements.
• The balance in the petty cash account should now be the same as the amount at which it started.

Similar to every financial concept or process, his system also comes with its own set of pros and cons. 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. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. The remaining cash plus the value of the receipts should always match the total float amount.

For instance, a small office might need ₹5,000 monthly, while a large manufacturing unit might require ₹25,000. This amount is handed over to the petty cashier, who becomes responsible for all transactions within this limit. “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.

When funds are depleted, they are typically replenished using documentation from the company’s primary bank account. This system helps monitor expenses, flag discrepancies, and ultimately detect fraud. Historically, petty cash systems were managed using physical cash kept on-site in a secure container or a locked drawer. A custodian was responsible for managing the petty cash fund, ensuring that it remained replenished and monitoring transactions. During an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers.

Comprehensive records, including receipts and justifications, are essential for tax compliance and financial reporting. Petty cash for minor repairs covers unexpected maintenance issues, such as small-scale repairs to office equipment or plumbing. Under International Financial Reporting Standards (IFRS), these costs are expensed in the period incurred. Businesses often allocate a set amount monthly for such repairs, ensuring operational continuity. Detailed documentation for each repair transaction is crucial for audits and evaluating maintenance strategies.

Changing the Imprest Petty Cash Fund

Despite these advantages, there are also some drawbacks to using imprest accounts. One concern is the need for close monitoring of cash balances to ensure that funds are being used appropriately and efficiently. Since imprests require regular replenishment, businesses must allocate time and resources to managing these accounts effectively. This can be a challenge for smaller organizations with limited financial staff or resources.