Imprest Petty Cash

The imprest petty cash system is a method of accounting for petty cash expenses. Under the system, the petty cash fund is maintained at a fixed amount set when the fund is first established.

During an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers. Subsequently at the end of the period a petty cash reconciliation is carried out, and the cash spent is reimbursed to restore the imprest petty cash fund balance back to its original fixed amount.

At any point in time, the cash held plus the value of the petty cash vouchers for expenses paid should be equal to the original fixed imprest system amount.

Cash held + Petty cash vouchers = Fixed imprest amount

We outline below the imprest system of petty cash journal entries used to establish, use, and reimburse the imprest account.

Establishing The Imprest Account

To illustrate suppose a business wants to implement an imprest system and establish a fixed cash fund of 100 at the start of an accounting period. The journal to create the imprest account is as follows:

As can be seen this journal effectively transfers the amount of 100 from the cash account to the petty cash account. It is important to note that having established the imprest fund of 100, providing the amount of the imprest money is not altered, no further postings are made to the petty cash account in the general ledger.

Paying Expenses from the Petty Cash Fund

The imprest system is now used to pay cash expenses as they arise during the accounting period. Suppose as an example, there are two expenses during the period as follows:

1. Postage 25
2. Stationery 40

For each expense a petty cash voucher is completed, proof (invoice or other document) is attached, and a signature is obtained to indicate that cash has been received from the petty cash fund.

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.

It is important to realize that at all times the total of the cash held plus the petty cash vouchers should equal the original imprest fund.

Cash held + Petty cash vouchers = Fixed imprest amount
35 + 65 = 100

This unique feature of the imprest system of petty cash is one of its most important advantages as it allows spot checks on the petty cash fund at any point in time. To illustrate the table below demonstrates this position.

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.

Entering Amounts in the Petty Cash Book

The petty cash book is not part of the double entry bookkeeping system, and simply records movements on the petty cash imprest fund. The petty cash book usually consists of a columnar book with one side used to record the original receipt of cash to establish the fund, and the other to analyse payments by expense categories, such as postage and stationery used in the above example.

Replenishing the Imprest Petty Cash Fund

Subsequently at the end of the accounting period the petty cash book is totalled and reconciled, and the petty cash fund is replenished.

It the above example, the cash at the end of the accounting period is 35, and therefore the fund needs the amount of 65 to restore the it back to its original fixed amount of 100.

Cash to replenish = Fixed imprest amount - Cash held
Cash to replenish = 100 - 35
Cash to replenish = 65

Unless there are any discrepancies in the fund, the cash needed to replenish the fund is also equal to the value of the expenses paid, which in turn, is equal to the value of the supporting petty cash vouchers.

The cash account replenishes the petty cash fund using the following bookkeeping journal.

The cash from the cash account replenishes the petty cash fund, and at the same time the journal records the expenses in the correct expense account. Again, it is important to realize that no entry has been made to the petty cash account, this remains fixed at the original imprest amount of 100.

In the petty cash book (not part of the double entry bookkeeping system), the cash received to replenish the fund of 65 is recorded and the imprest fund is now back to its original cash amount of 100.

Errors in the Imprest System

If at any time the total of the remaining cash held plus the petty cash vouchers is not equal to the original fixed imprest fund amount, then an error must have occurred in the recording of petty cash which needs to be investigated and either corrected or written off.

In the event that the error cannot be identified and corrected, in order for the imprest petty cash system to work correctly, the cash replenishment must still be for the difference between the fixed imprest amount and the remaining cash held.

Suppose in the example above the remaining cash held had been 25 and not the 35 expected. Assume the investigations cannot establish the reason. In this case the calculation of the replenishment amount is as follows.

Cash to replenish = Fixed imprest amount - Cash held
Cash to replenish = 100 - 25
Cash to replenish = 75

The imprest petty cash journal entry would then be as follows:

As can be seen the difference of 10 in this example has been written off to sundry expenses. Furthermore the cash replenishment of 75 increases the current cash held of 25 thereby restoring the petty cash fund back to the original fixed amount of 100.

Changing the Imprest Petty Cash Fund

The only occasions in which a posting is made to the petty cash account in the general ledger is when the amount of the imprest (petty cash fund) is permanently altered.

For example, if the business wanted to increase the fixed imprest amount to 150 from its original 100, then additional cash of 50 would be withdrawn from the checking account and deposited in the petty cash account using the following journal:

This amount would now be recorded in the petty cash book on the receipt side and the fund would be fixed at 100 + 50 = 150 until altered gain.

Imprest Account in Balance Sheet

The imprest account forms part of the cash of the business and the fixed amount should be included under the heading of cash and cash equivalents in the balance sheet.