Understanding Imprest
Imprest refers to a financial system that a company uses to manage small, frequent expenses within an organization. It is a cash account that is responsible for maintaining a fixed amount of cash or funds which is regularly replenished by the cashier. The term ‘imprest’ also refers to a monetary advance or a loan that is given to a person for a particular purpose. However, as businesses are increasingly opting for electronic transactions, the imprest system is being slowly supplemented by more technologically driver options. Using a company credit card is becoming a favorable choice as it records accurate data of electronic transactions and removes the need for replenishing spent cash.
How Does Imprest Work?
- The most common form of the imprest system is a petty cash account. It is designed for handling small transactions in situations when writing checks is not a possibility. This account keeps a fixed amount of cash on-site to cover minor expenses and reimburse employees. A custodian manages the petty cash fund, giving out cash to employees who provide receipts for their business-related expenses.
- Imprests can also be used for payroll, dividends, employee travel, and bonuses. After these expenses are paid, the fund is replenished with money from the company’s main bank account.
- Imprests help prevent unauthorized spending because the cash is designated for specific purposes. The fund is regularly replenished to its original amount after being used, ensuring it stays near zero. This system simplifies tracking expenses, helps identify discrepancies, and reduces the risk of fraud.
Steps Involved in the Imprest System
- Set up a small cash fund with a fixed amount of money. Record this amount in the company’s ledger.
- Use the fund for minor expenses and make sure to collect receipts for each transaction.
- Regularly review the fund, and based on the receipts collected, add money to bring the fund back to its original fixed amount.
- Compare the planned cash that is based on the record with the actual cash. Investigate and resolve any differences to ensure accuracy.
