Explain how the imprest system of petty cash book works

Under this system an estimate is made of the amount required for small payments for a certain period, say, a week or a month and this amount is paid to the petty cashier in advance. Like a general cash book, a petty cash book has a debit and a credit side. Petty cash is money that is reserved for small expenses where payment by cheque or debit card would prove inappropriate or timeconsuming. Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. Under this system a fixed sum of money is given to the petty cashier to cover the petty expenses for the month. Under the imprest system, the head cashier makes the reimbursement of the amount spent by the petty cashier but under non imprest system, the head cashier may handover the cash to the petty cashier equal tomore thanless than the amount. An imprest system is an accounting system that involves monitoring and managing petty cash payouts and subsequent replenishment. The imprest petty cash system is a method of accounting for petty cash expenses. His transactions for the month of september 2007 were. Using the imprest system to calculate and top up petty cash reserves enables easy tracking of small expense claims and reduces the risk of fraud because when petty cash expenditure is added to the remaining cash in the cash box the total should always equal.

A fixed amount of cash is allocated to a petty cash fund, which is stated in a separate account in the general ledger. This video shows the creation and replenishment of petty cash. An imprest system is used to run and manage a petty cash fund. Petty cash book can be expressed as a formal summarization of the petty cash expenditures which refers to the daytoday normal expenditures of the business which is not related to the direct line. Petty cash book explanation, format, example, ordinary and imprest. The amount of petty cash also known as the petty cash fund varies by company or organization. Under this time period, the cashier has to run the petty cash account under the given budget. The most common example of an imprest system is the petty. By watching this video you will understand how to record all the entries in the petty cash voucherreceipt book. Generally, petty cash book is maintained on imprest system. Petty cash is the small cash reserves that businesses keep on the.

Under both the systems ie imprest and non imprest the. Sara iqbal petty cash book total received date details total paid office expenses travelling expenses cleaning ledger accounts. The petty cash account is used to make small purchases. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. One key component of the system is the need for documentation of all expenditures, which provides an excellent means of maintaining tight control over cash. Check this new syllabus to the course scheme for the theory and practical assessment. Aslong as set amount is adequate for the small disbursements, there will be no entry in general ledger account petty cash. Before the rise in the use of credit cards and charge cards, nearly all companies used petty cash accounts to allow employees responsible for purchasing small supplies to do so with minimal hassle.

Cash funds counted by the department of internal audit sometimes exceeded or were less than the amounts listed in the cfws general ledger. Please help improve it or discuss these issues on the talk page. The most common example of an imprest system is the petty cash system. This occurs with an imprest petty cash system and an imprest payroll account. First, management has to estimate how many small purchases it will make and much money it will need for these purchases.

However, since cash is the most liquid resource of the entity, strong controls over it are necessary to avoid possible misappropriation. Understand how the imprest system works in the petty cash book. An imprest system is a method to account for petty cash by. 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. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments.

The more scientific method of maintaining petty cash so for introduced into practice is the imprest system. In most cases, the petty cash book is an actual ledger book, rather than a computer record. The entries in sara iqbals petty cash book for february 2010 were as follows. The people in charge of the fund replenish the account with the same amount that was spent.

Petty cash book may be maintained by ordinary system or by imprest system. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established. In an imprest petty cash system the petty cash fund is maintained at a fixed sum. The cash is given to the petty cashier either on ordinary system or imprest system which are briefly explained below. Under this system, the total petty expenses for a particular period are estimated and that. In almost all businesses, it is found necessary to keep small sums of ready money with thecashier or petty cashier for the purpose of meeting small expenses such as. In large business concerns, the petty cash book is maintained in columnar or analytical form, with a separate column for each usual item of expense and a column for.

The imprest system is an accounting system for paying out and subsequently replenishing petty cash. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. To account for petty cash, create a transaction log that covers the date, the person who used the petty cash, a description of the transaction, and any other deposits or expenses. The petty cashier should record the details of the transaction in the petty cash book and then store the petty cash book, petty cash box, vouchers and receipts in a lockable cabinet. Under imprest, petty cash book system petty expenses are recorded in chronological order of dates. Although you can fund a petty cash account in any amount. What is the difference between an imprest and nonimprest. If a business uses the imprest system, it will create an imprest account to pay for small, routine, or incidental expenses.

How the imprest system of petty cash book works azcentral. There are two primary types of entries in the petty cash b. The most common imprest system is the petty cash system. The imprest system is an accounting system designed to track and document how cash is being spent. The base characteristic of an imprest system is that a fixed amount is reserved, which after a certain period of time or when circumstances require, because money was spent, it will be replenished. The petty cashier reimburses the claimant using money from the petty cash box. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a set amount. How does the imprest system of petty cash book work. Imprest petty cash system works on the principle that at any point of time, the petty cash box contains cash and petty cash tickets that total the amount of the imprest balance. Imprest and non imprest, the petty cashier submits the petty cash book to the head cashier who examines the petty cash book. The petty cashier makes the small payments and records them in the petty cash book. Accounting for petty cash explanation, related controls.

The imprest system is designed to provide a rudimentary manual method for tracking petty cash balances and how cash is being used. What are the importance of petty cash imprest system answers. The petty cash book is a formal summarization of petty cash expenditures, sorted by date. At the end of the period, the cashier submits the report and the amount spent by him is reimbursed so that. Explain how an imprest petty cash system works journalize establishment of the petty cash fund on march 1 and replenishment of the fund on march 31. Manage your business expenses anytime, anywhere with debitoor invoicing software. The imprest system requires that, at any point in time, the petty cash box contains cash and receipts that total the amount of the imprest balance. Complete the following to explain how an imprest petty cash system works.

Second, a check is written for this amount, and the cash is given to the cashier in charge of the petty cash fund. Sara iqbal maintains a petty cash book using the imprest system. In case of ordinary system of petty cash, the petty cashier is given a certain amount of cash and after spending the whole of that amount, he submits the accounts to the head cashier. Petty cash works on the imprest system, in which there is an initial amount of money put into an account, which is drawn upon for a specific purpose in this case, petty cash. Many of the companies that still use petty cash use the imprest system for tracking and record usage and replenishment in a petty cash book. Petty cash is a convenient way to pay for expenses such as stamps and emergency purchases too small to pay for with a business check. Petty cash imprest system is an effective way to manage small day to day expenses. An imprest system of petty cash means that the general ledgeraccount petty cash will remain set at a given amount. What is the difference between an imprest and non imprest petty cash account. So, at all times, you can check how much should be left in. Petty cash book format example definition explanation. Youll also want to purchase a lock box for the cash and receipts. How petty cash imprest system works the imprest system ensures that you must document how the petty cash is spent. The most wellknown type of imprest is a petty cash account, which is used to cover smaller transactions.

E717 requirement 1 maintaining the petty cash account at its designated balance is the nature of an imprest system. In a petty cash system, petty cash dockets are written for each amount issued. In an imprest system, the amount requested is documented. This clearly identifies the amount of cash for which the custodian is responsible, and it is the system. If at any time the total of the remaining cash held plus the petty cash vouchers is not equal to the. Explain how the imprest system of petty cash book works. The imprest system reduces the chances of misuse of cash because the float can be immediately reduced if it is found to be more than adequate for the agreed period. The main purpose of giving out these past questions on financial account is to help prepare students who has registered for the waec gce exam. The imprest system of petty cash is used by most of the companies because of the following advantages. How the imprest system of petty cash book works your. The petty cash book is not part of the double entry bookkeeping system. Petty cash is a small reserve of cash kept onsite at a business location for incidental cash needs.