If you’re looking for a simple way to keep track of your petty cash, an Imprest account could be ideal. In short, the Imprest petty cash procedure is a rudimentary method for tracking petty cash disbursements. Find out more with our simple guide, starting with a quick overview of the meaning of Imprest.
The Imprest system is an accounting system that’s used to track how your business is spending cash. In most cases, Imprest systems are used to account for petty cash (a small amount of money used for expenditure on smaller items, i.e. office supplies, catered lunch, cards for customers, etc.). The key feature of the Imprest system is the fact that all expenditures must be documented. This gives you a greater degree of control over cash disbursements made by your company.
Why use an Imprest account for petty cash?
One of the main benefits of the Imprest system is the fact that it helps to deter unauthorised spending, as the money in the account is earmarked for a particular use. Because Imprest accounts pay out roughly the same amount of cash on a regular basis before they’re automatically replenished, it’s much easier to flag discrepancies and detect employee fraud. Put simply, you’ll gain much more visibility into your petty cash balances as well as how that cash is being used.
However, it’s also important to note that there are limitations associated with an Imprest account for petty cash. Because it relies on a petty cash custodian to record disbursements properly, the Imprest system can potentially cause cash leakage from the business.
How does the Imprest petty cash procedure work?
Want to know how an Imprest account for petty cash works? It’s relatively simple, so here’s a step by step guide that you can follow for a little more information:
Firstly, an Imprest account is created. This account is used to pay for incidental expenses, such as flowers for an employee who’s leaving the company. The Imprest account has a set amount of cash and is recorded in your company’s ledger.
Any time an expense is paid through the Imprest petty cash procedure, it needs to be documented with receipts. Your accounting team should monitor the account for any discrepancies between the actual cash and the expected cash in the account. If you do encounter any discrepancies, they should be investigated.
The Imprest account for petty cash should be replenished regularly from another account to ensure that it always retains a fixed balance.
Documenting your Imprest account with receipts helps you to monitor how much money is being spent on incidental expenses, while also keeping you protected from employee fraud.
The future of the Imprest system
While the Imprest petty cash procedure used to be relatively widespread, the increased prominence of electronic transactions has led to a decline in usage of the Imprest system. When faced with incidental expenses, lots of businesses will either use credit cards or ask their employees to pay with cash and request reimbursement from the company. Not only do credit cards offer electronic documentation, but they don’t require you to replenish the funds in the account, which means that they’ve become the preferred option. If you’re still interested in implementing an Imprest account for petty cash, go ahead, but remember there are other options available to you.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.