Understand how the imprest system works in the petty cash book. It is convenient to entrust a definite sum of money to the petty cashier in the beginning of a period and to reimburse him for payments made at the end of the period. 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. Thus, he will have again the fixed amount in the beginning of the new period. This is the maximum amount of cash that can be held at any time. Under this time period, the cashier has to run the petty cash account under the given budget. 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. This form of recording petty cash is called the the imprest petty cash system. Typically, it may also contain the so many expense columns in the credit side of the cash book to record expenses. The imprest system is a form of financial accounting system. This system makes it easier to monitor expenses, flag discrepancies, and ultimately detect fraud. Importance and advantages of petty cash book business performing a large number of petty transactions usually maintain a separate petty cash book. Simple cash book contains only one amount column on each side debit and credit for recording cash receipts and cash payments. When the account goes below a certain specified amount, the system is replenished.
An imprest system is an accounting system that involves monitoring and managing petty cash payouts and subsequent replenishment. Petty cash book explanation, format, example, ordinary and. Limit access to the petty cash account to two people and store the cash in a tamperproof safe. It relieves the cash book and the chief cashier of the burden of recording tiny and frequent payments. Apr 26, 2020 the petty cash book is a formal summarization of petty cash expenditures, sorted by date. Avoid making the petty cash accessible to all employees, as this sets the stage for theft. An imprest is a cash account that a business uses to pay for small, routine expenses.
Managing a petty cash account for your small business. Petty cash is a small reserve of cash kept onsite at a business location for incidental cash needs. Petty cash book explanation, format, example, ordinary and imprest. This can be handled by a junior member of the staff, making it. Overall, petty cash is a largely outdated and inefficient system. The petty cashier is given a sum of money in the beginning of the period. At end the firm reimburses him the amount paid by him so that the balance of cash with him. Definition of petty cash petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check.
The reason for replenishing the fund at the end of the accounting period is that no record of the fund expenditures is in the accounts until the check is written and a journal entry is made. The more scientific method of maintaining petty cash so for introduced into practice is theimprest system. The most common way of accounting for petty cash expenditures is to use the imprest system. In a business operating this type of cash book, small cash payments are usually made out of petty cash. Under the imprest petty cash system, the petty cashier amount is fixed for a given time period under which is usually under a month or a week. Petty cash book is maintained by the petty cashier and act as the petty cash book petty cash book 3. It is a system of petty cash book where a person is given a fixed amount in the beginning of the period, the petty cashier submits the account of expenses keeping surplus amount himself. The analytical petty cash book and the imprest system. Petty cash book a petty cash book is shown on the next page. Documenting transactions is the way a business documents business expenses for tax purposes. Thus, the book is part of a manual record keeping system. Petty cash book 2019, imprest system of petty cash. Jul 16, 2019 the most important part of a petty cash system is the documentation of each transaction. Here we detail about the three types of cash book, i.
Petty cash book 2019, imprest system of petty cash advantages. At the end of agreed period, the petty cashier submits the details of all expenditures incurred by him to the chief cashier. The cashier makes payment out of the amount granted to him. The most wellknown type of imprest is a petty cash account, which is used to cover smaller transactions. In most cases, the petty cash book is an actual ledger book, rather than a computer record. Meaning of petty cash book, its importance and advantages. Let us learn about the petty cash book and the various systems of maintaining. By keeping track of all petty cash transactions no matter how petty you have records to back up deductions for those small business expenses. Under this system a fixed sum of money is given to the petty cashier to cover the petty expenses for the month. A fixed balance is maintained in the account, and it is replenished routinely to maintain that. Petty cash is a small reserve of used for transactions and expenditures where it doesnt make sense to write cheques. How do i keep commissions and fees from eating up my trading profits. Each time money is withdrawn, a voucher must be placed in the cash box to account for any missing funds. The most important part of a petty cash system is the documentation of each transaction.
The following points highlight the importance and advantages of petty cash book which can be taken as its objectives as well. The petty cash book is a document in business used for recording misclenius expenditure this are the unplanned and shallow demands that may arise in the daily running of the business. As head cashier checks the accounts of previous month and gives advance for the coming month, thus, errors if any are reduced. What is imprest system in maintain petty cash book. The imprest system is an accounting system for paying out and subsequently replenishing petty cash.
Such a system is known as the imprest system of pettycash. The most common imprest system is the petty cash system. Start a petty cash fund by writing a check drawn on your company to petty cash. An imprest system is a method to account for petty cash by maintaining a balance in a fund that equals petty cash receipts plus additional cash in the fund. It is a system of petty cash book where a person is given a fixed amount in the beginning of the period, the petty cashier submits the account of expenses keeping. The imprest system is a financial accounting system designed to track and document how cash is being spent. Apr 29, 2020 such a system is known as the imprest system of petty cash. Start maintaining a general ledger in which to keep track of the petty cash and petty cash. Petty cash and the imprest cash float system college. How to set up and maintain a petty cash account basic. It is the book which is used for the purpose of recording expenses involving small amounts. This type of cash book usually uses the imprest system. Imprest system of petty cash fund the world impress means advance amount which is personal to certain person to make petty expenses.
The imprest petty cash system is a method of accounting for petty cash expenses. An imprest system of petty cash is used for more control over cash in hand. Cash the cheque and create your first petty cash fund. Create a petty cash account and write out a cheque for the appropriate amount. 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. How the imprest system of petty cash book works your business. Jul, 2019 the imprest system is an accounting system for paying out and subsequently replenishing petty cash. But the imprest petty cash book having a maintain their petty cash each month opening fund impresetly. What are the advantages of a imprest system for petty cash. Note the analysis columns that enable the transaction to be recorded and analysed at the same time. How the imprest system of petty cash book works your. The petty cash book usually consists of a columnar book with one side used to record the original receipt of cash to establish the fund, and the other to analyse payments by expense categories, such as. This can be handled by a junior member of the staff, making it simpler for management. An imprest system is used to run and manage a petty cash fund.
The petty cash voucher details are then entered in the petty cash book and the voucher filed away in numerical order so that it may be easily located if necessary. Petty cash is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing, and then cashing the cheque. Tcc financial accounting chapter 7 flashcards quizlet. Balancing period the petty cashier is given fresh cheque of the amount equal to his payments during the same period. 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. Petty cash is the small cash reserves that businesses keep on the. This makes the entire petty cash system susceptible to abuse. The imprest system is the more popular system of petty cash. This is recorded as a separate account in the companys. The bigger the company, the harder it is to track outgoing petty cash, change and receipts. A way to account for petty cash by maintaining a constant balance in the petty cash account, supported by the fund cash plus payment tickets totaling the same amount. Keeping large amounts of petty cash may also increase the likelihood of theft in your business. Balancing period the petty cashier is given fresh cheque of the amount equal to.
The general description of imprest involves establishing a fund or account for the payment. Petty cash book maintains records of all petty payments systematically. Nov 23, 2015 understand how the imprest system works in the petty cash book. Using imprest, the petty cash of a company is kept at a constant rate. Most companies set up a special fund called a petty cash fund for small. During the period he makes payment out of this money. Commission of fraud is reduced as the chief cashier verifies petty cash book alongwith vouchers and the petty cashier is more responsible. Dec 15, 2018 add a petty cash account to your chart of accounts if you do not already have one. The imprest system is designed to provide a rudimentary manual method for tracking petty cash balances and how cash is being used. For recording transactions in the simple cash book, the foremost step is to understand. Add a petty cash account to your chart of accounts if you do not already have one. What are the nature of transactions that are recorded in the petty cash book.
The petty cash book accounts for the cash spent on this short term arising needs of the company and it is necessary for accountability for the expenditure on the. Many expenses of small nature are recorded in petty cash book. Internal auditors employees of the business who ensure that the companys employees are following company policies, meeting legal requirements, and that operations are running. First, management has to estimate how many small purchases it will make and much money it will need for these purchases. The balance of the petty cash book will be shown on the asset side of balance sheet as cash in hand at the end of the year. What are the advantages of using the imprest system. There are two primary types of entries in the petty cash book, which are a debit to record cash received.
The imprest system enables significant saving to be effected to post small items to accounts in the ledger since it uses an analysis system that collects small items. Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low. Under the system, the petty cash fund balance is always maintained at a fixed amount decided on when the fund is first established. Most companies set up a special fund called a petty cash fund for small purchases and office expenditures. Definition of an imprest system of petty cash an imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. The imprest system is used for petty cash book maintenance. Businesses generally keep small amounts of cash to meet small miscellaneous payments such as entertainment expenses and stationery costs. In module 12, which covered the bank cash book, the advantages of paying all cash and cheques into the bank intact were evident. Accounting for petty cash explanation, related controls and. In this system, the petty cashier is entrusted with a specified amount at the beginning of every month, fortnight or week. Petty cash book makes possible for making comparison of the petty expenses between two periods and helps in controlling such petty expenses more effectively. The system is very useful specially if an analytical petty cash book is used.
The main advantages of petty cash book publish your article. While convenient for small purchases, it is not a realistic solution for larger expenses. 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. Petty cash book supplies information regarding petty payments made on different heads more easily and quickly. Under the imprest system, a fixed sum is established as a petty cash for a fixed period to meet the business requirement. Petty cash financial accounting simple book production. The system is a form of managing petty cash in a business. The check written to establish a petty cash fund in entered in the general journal by. Under the imprest system maintaining petty cash book, petty cashier is provided with a fixed amount of money known as imprest or float which is sufficient to meet the needs of balancing period. In an imprest system, the amount in hand plus the amount of all receipts should be equal to petty cash balance. Second, a check is written for this amount, and the cash is given to the cashier in charge of the petty cash fund. What are the advantages of maintaining a petty cash book. Imprest system of petty cash is a system where the petty cashier is given a lump sum in cash often called a float keeping in view the possible needs of the business to meet its petty expenses for a stated period, e. What is the importance of petty cash in a business.
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. How the imprest system of petty cash book works azcentral. Imprest system news newspapers books scholar jstor april. Petty cash book format example definition explanation. An imprest system of petty cash means that the general ledger account petty cash will remain dormant at a constant amount. Setting up a petty cash system is pretty straightforward and can be accomplished in eight easy steps. Every time when the person who control the bank accountdisbursement to petty cash is able to have a closer internal check on the actual petty cash expenditure incurred. From the following particulars prepare a petty cash book under imprest system. Such payments are generally handled by a petty cash imprest system whereby an amount of float is fixed. For this purpose, a petty cashier is appointed by the firm, to pay for small payments usually below rs. The book has one column to record receipt of cash which is only from the main cashier and other columns to record payments of various types.
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