An imprest amount refers to a fixed amount of money that a company or organization sets aside and maintains at a consistent level for minor expenditures. The most common example of this is a petty cash system.
Here’s how an imprest system generally works:
- A fixed amount of cash is designated for minor business expenditures (e.g., $200). This is the imprest amount.
- As employees make minor purchases (e.g., office supplies, minor travel expenses, postage, etc.), they take money from this fund and replace it with a receipt detailing the expense.
- When the cash in the petty cash fund runs low, the fund is replenished back up to the original fixed amount (in this case, $200). This is typically done by writing a check. The value of the check should be the total of the receipts, which should equal the amount of cash that was used.
- The replenishment process allows for the accounting department to review receipts and categorize the expenditures appropriately in the company’s financial records.
The imprest system provides a way to manage and control minor expenses while maintaining an audit trail of expenditures. The key is that the amount of cash plus the value of the receipts should always equal the original fixed imprest amount.
Example of an Imprest Amount
Let’s take an example of a small business that decides to establish a petty cash fund using an imprest system.
- The company decides on an imprest amount of $500. This amount is chosen based on the estimated minor expenses the company anticipates over a certain period, let’s say a month. They withdraw this amount from the bank, recording it as a debit to the petty cash account and a credit to the bank account in their accounting books.
- During the month, employees use the petty cash fund to pay for small, necessary business expenses. For example, an employee might use $20 from the fund to pay for office supplies and another $30 for a local business lunch meeting. Each time they use the petty cash, they put a receipt in the box indicating how much was spent and what it was spent on.
- By the end of the month, the employees have spent $150 on various small expenses, leaving $350 in the petty cash fund. The receipts in the box total $150.
- The petty cash custodian then replenishes the fund back to the original $500 by writing a check or withdrawing cash from the company’s bank account for the amount of the receipts ($150). In the company’s accounting books, this replenishment is recorded as a credit to the petty cash account and a debit to the various expense accounts according to the nature of expenses evidenced by the receipts.
- This process repeats each month. The total of the cash in the petty cash fund and the receipts should always equal the original imprest amount of $500, providing an easy way to audit the fund and ensure all expenses are accounted for.