The petty cash account should be reconciled and replenished every month to ensure the account is balanced and any variances are accounted for. The accountant should write a check made out to “Petty Cash” for the amount of expenses paid for with the petty cash that month to bring the account back up to the original amount. The check should be cashed at the company’s bank and the cash placed back in the petty cash safe or lock box. A constant or unchanging amount that is often used when referring to petty cash. For example, if the petty cash account in the general ledger has an imprest balance of $100, the account balance will be a constant $100.
The balance in the petty cash account should now be the same as the amount at which it started. When the cash balance in the petty cash fund drops to a sufficiently minimal level, the petty cash custodian applies for more cash from the cashier. This takes the form of a summarization of all the receipts that the custodian has accumulated. The cashier creates a new check in the amount of the receipts, and swaps the check for the receipts. The petty cash journal entry is a debit to the petty cash account and a credit to the cash account.
What is meant by imprest account?
Self-checking account where a fixed balance is maintained by regular replenishments and used for paying small, routine operating expenses. Also called Imprest account, Imprest fund, petty cash account, or petty cash fund,.
During an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers. 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. The imprest petty cash system is a method of accounting for petty cash expenses. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established. 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 cashier creates a journal entry to record the petty cash receipts. This is a credit to the petty cash account, and probably debits to several different expense accounts, such as the office supplies account (depending upon what was purchased with the cash).
Under imprest system, a fixed amount of money known as float is given to the petty cashier to meet petty expenditures for an agreed period which usually consists of a week or month. At the end of agreed period, the petty cashier submits the details of all expenditures incurred by him to the chief cashier. At any time, the total of petty cash balance and all expenditures that have not been reimbursed to the petty cashier is equal to the agreed float. Cash is withdrawn from the cash account (to replenish the petty cash fund), and at the same time the expenses are recorded in the correct expense account. Again, it is important to understand that no entry has been made to the petty cash account, this remains fixed at the original imprest amount of 100.
Petty cash funds are typically handled by custodians who monitor the account and dispense cash to employees, who in turn furnish business-related receipts. In essence, expenses are recognized when new cash replenishments are made to the petty cash fund from the company checking account. When cash is paid from the checking account, the entry is a debit to the various expenses for which receipts are being supplied by the petty cash custodian, and a credit to the cash account. The petty cash custodian refills the petty cash drawer or box, which should now contain the original amount of cash that was designated for the fund.
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The journal entry on the balance sheet should list a debit to the business bank account and a credit to the petty cash account. When petty cash is used for business expenses, the appropriate expense account — such as office supplies or employee reimbursement — should be expensed. Most companies keep a small amount of cash on hand to pay minor business-related expenses that don’t warrant the writing of a check or use of the corporate credit card.
- During an accounting period petty cash is used to pay cash expenses which are supported by petty cash vouchers.
- The imprest petty cash system is a method of accounting for petty cash expenses.
An imprest is a cash account a business relies on to pay for small, routine expenses. Funds contained in imprests are regularly replenished, in order to maintain a fixed balance. The term “imprest” can also refer to a monetary advance given to a person for a specific purpose. The imprest petty cash fund 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.
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. 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 petty cash amount. Under this imprest system of petty cash book, the head cashier provides a fixed amount of money to the petty cashier in advance for meeting expenditure of a particular period. Petty cash is a current asset and should be listed as a debit on the company balance sheet. To initially fund a petty cash account, the accountant should write a check made out to “Petty Cash” for the desired amount of cash to keep on hand and then cash the check at the company’s bank.
By documenting expenses with receipts and confirming that the cash balance is maintained, the petty cash system is that it helps monitor how the money is being spent and protects the money from being stolen. If a business uses the imprest system, it will create an imprest account to pay for small, routine, or incidental expenses. This account has a fixed balance and is replenished using another account, such as cashing a cheque drawn from a bank account. This system is called the imprest system of petty cash and the amount so granted is termed as a float. The amount of float is decided in such a manner, that it may be sufficient to meet petty expenses, for the stipulated term.
The Future of Imprests
Any difference in these amounts is entered into the account Cash Short and Over. The most well-known type of imprest is a petty cash account, which is used to cover smaller transactions when it’s impractical or inconvenient to cut checks. Such accounts maintain a set amount of cash on-site, which can be used to reimburse employees and pay for small expenses.
A petty cash fund is a convenient method to pay for small business transactions such as postage, delivery fees or emergency office supplies. It is important to keep accurate records of all petty cash expenditures for bookkeeping purposes. Businesses generally keep small amounts of cash to meet small miscellaneous payments such as entertainment expenses and stationery costs. Such payments are generally handled by a petty cash imprest system whereby an amount of ‘Float’ is fixed.
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. Self-checking account where a fixed balance is maintained by regular replenishments and used for paying small, routine operating expenses. Also called Imprest account, Imprest fund, petty cash account, or petty cash fund,.
Each time cash level runs low, the petty cash imprest is injected with cash by drawing a cheque. The amount of reimbursement is equal to the expenses paid through petty cash since the time of last reimbursement. Petty cash balance after reimbursement reverts to back to the level of the float.
At the end of the accounting period the petty cash book is totalled and reconciled, and the petty cash fund is replenished. The petty cash book is not part of the double entry bookkeeping system, and is used simply to record movements on the petty cash imprest fund.