What is meant by Imprest?
The Imprest system is an accounting system that’s used to track how your business is spending cash. 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 most important aspect of imprest system is that all exapenses are properly documented, which can be used for better control on day to day expenses of the organization.
Why use an Imprest account for petty cash?
One of the main benefits of the Imprest system is the fact that it helps to deter unauthorised spending, as the money in the account is earmarked for a particular use. 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.
However, it’s also important to note that there are limitations associated with an Imprest account for petty cash. Because it relies on a petty cash custodian to record disbursements properly, the Imprest system can potentially cause cash leakage from the business.
How does the Imprest petty cash procedure work?
Want to know how an Imprest account for petty cash works? It’s relatively simple, so here’s a step by step guide that you can follow for a little more information:
Firstly, an Imprest account is created. This account is used to pay for incidental expenses, such as flowers for an employee who’s leaving the company. The Imprest account has a set amount of cash and is recorded in your company’s ledger.
Any time an expense is paid through the Imprest petty cash procedure, it needs to be documented with receipts. Your accounting team should monitor the account for any discrepancies between the actual cash and the expected cash in the account. If you do encounter any discrepancies, they should be investigated.
The Imprest account for petty cash should be replenished regularly from another account to ensure that it always retains a fixed balance.
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.
Example of the imprest system – petty cash
Petty cash is a small reserve of used for transactions and expenditures where it doesn’t make sense to write cheques. The petty cash system follows a general process:
1) A petty cash fund is created and allocated a set amount of cash. This is recorded as a separate account in the company’s general ledger.
2) Any expenses paid with petty cash are documented with receipts.
3) The petty cash fund is regularly topped up to maintain a set balance.
4) The fund is regularly monitored to ensure there are no discrepancies between expected cash (based on the documented receipts) and the actual cash.
5) If discrepancies are found, these are investigated .
By documenting expenses with receipts and confirming that the cash balance is maintained, the petty cash system is that it helps monitor how the money is being spent and protects the money from being stolen.