What is Imprest System ?

An imprest is a cash account that a business relies on to pay for routine, small expenses.  This account has a fixed balance and is replenished using another account, such as cashing a cheque drawn from a bank account.

It is an accounting system which is used to track and analyse how cash is being spent. 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, etc ).

The key feature of this system is that it documents all the expenditures which provides a greater control over the cash payments made by the company.

 WORKING OF IMPREST SYSTEM FOR PETTY CASH –

The imprest system comprises of the following steps:

  • 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.
  • Any expenses charged by the small cash fund must have receipts reported.
  • The accounting team should monitor the account for any discrepancies between the actual cash and the expected cash in the account. In case of 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.

An imprest system like this is extremely important not only to manage how the petty cash is being spent but also to protect the money from being stolen.

ADVANTAGES OF USING IMPREST SYSTEM –

  • By keeping a check on the amount refunded to the petty cashier , it is easy to know whether there are extravagant expenses .
  • This method is very scientific and labour saving. The total expenditure under each column can easily be ascertained and only the periodical totals of each column need be posted to the ledger.
  • It reduces the burden of Chief Cashier of recording small and frequent payments in the cash book .

Despite of the various advantages, there is a decline in the usage of imprest system because of the increased dependence of businesses on electronic transactions .

Accounting & Finance for Banking

Principles & Practices of Banking Module E Pdf

Free
Module E PPB ePDFs available in our android app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Leave a reply

Please enter your comment!
Please enter your name here

Popular

Free Live Classes

More from author

Money Market Instruments

Money market instruments are short-term financing instruments aiming to increase the financial liquidity of businesses.  These are the securities that provide businesses, banks, and...

Forfaiting in detail

Forfaiting is a mechanism where the exporter surrenders his rights to receive payment against the goods and services rendered to the importer in exchange...

Factoring in detail

Factoring is defined as a financing technique which involves a financial agreement between 2 parties, namely, factor & a client in which  the firm...

ADR – American Depository Receipts

American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the number of shares of a foreign company that...