An imprest is a financial system used by businesses for minor, regular expenses. It can also refer to a specific-purpose loan. However, with the rise of electronic transactions, imprests are being replaced by company credit cards.
- A fixed amount of money is kept in an Imprest account.
- The account is used for specific petty cash expenses.
- All transactions are documented and recorded.
- Usually, a single person handles the Imprest account.
Imprest System Operation
- It involves setting aside a fixed amount for recurring or unexpected expenses.
- The reserved money is used for specific purposes like petty cash expenses.
- A custodian manages the account, disbursing funds as needed with proper documentation and record-keeping.
Imprest System Steps
- Establish a small cash fund, recorded in the business ledger.
- Document receipts for all charges made from the fund.
- Periodically refill the fund with receipts from disbursements to maintain a balance.
- Review the fund for discrepancies between actual and expected cash, based on records.
Purpose of an Imprest Account
An Imprest account enables businesses to set aside a fixed amount for recurring or unexpected expenses, control expenditures, track expenses, and reduces the risk of fraud with proper documentation and record-keeping.
Advantages of the Imprest System
- Controls expenses by limiting the amount of money available.
- Facilitates easy tracking of expenses with transaction records.
- Ensures efficient use of funds by allocating them to specific purposes.
- Reduces fraud risk through well-documented transactions.
Disadvantages of the Imprest System
1. Outdated System: Petty cash books are not efficient for current company requirements.
2. Inconvenient for Larger Expenses: The system isn’t compatible with larger expenses.
3. Overspending: Without expenditure limits, there is a risk of overspending.
4. Theft: Without proper controls, petty cash can be misused by employees.
5. Misappropriation: Liquid assets like petty cash can be misappropriated in the absence of adequate controls.