How to prepare a petty cash book applying IMPREST principle.

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Meaning of the Imprest Principle

The imprest principle is a system of controlling petty cash whereby a fixed sum of money is given to the petty cashier at the beginning of a period. At the end of the period, the petty cashier is reimbursed with exactly the amount spent so that the petty cash balance is restored to its original fixed amount.

Definition of the Imprest System

The imprest system of petty cash is a method under which a predetermined amount of money is advanced to the petty cashier, and after accounting for all petty cash expenditures during a specific period, the amount spent is refunded to bring the balance back to the original imprest amount.

Objectives of the Imprest System

The imprest system is adopted in organizations for the following reasons:

1.      To ensure proper control of petty cash expenditure

2.     To reduce the risk of misuse and fraud

3.     To simplify the recording of minor expenses

4.    To promote accountability of the petty cashier

5.     To facilitate easy auditing and verification

Operation of the Imprest System

The imprest system operates through a clearly defined procedure as explained below.

1.     Fixing the Imprest Amount

Management determines a fixed amount of money to be used for petty expenses over a given period, such as a week or a month. The amount is based on the nature and frequency of minor expenses.

2.   Issuing the Imprest

The main cashier or accounts office releases the fixed amount to the petty cashier. This amount is recorded in the petty cash book as the opening balance.

3.   Making Petty Payments

The petty cashier uses the imprest to meet small expenses such as:

·         Postage and courier services

·         Local transport and fares

·         Stationery and office supplies

·         Tea, snacks, and minor refreshments

4.   Supporting Documents

Every payment made must be supported by a petty cash voucher or receipt. These documents provide evidence of the transaction and help in accountability.

5.    Recording in the Petty Cash Book

All payments are recorded promptly in the petty cash book under the appropriate expense columns. The petty cashier ensures accuracy and completeness in recording.

6.   Balancing the Petty Cash Book

At the end of the period, total expenses are calculated, and the petty cash book is balanced to determine the remaining cash.

7.    Reimbursement of Petty Cash

The main cashier reimburses the petty cashier with an amount equal to the total expenses incurred. This restores the petty cash balance to the original imprest amount.

8.   Features of the Imprest System

The imprest system has the following key features:

1.      A fixed imprest amount

2.     Periodic reimbursement

3.     Proper documentation of all expenses

4.    Separation of duties between main cashier and petty cashier

5.     Regular balancing of the petty cash book

Advantages of the Imprest System

1.      Provides effective control over petty cash

2.     Minimizes fraud and misappropriation

3.     Simplifies bookkeeping procedures

4.    Enhances accountability and responsibility

5.     Facilitates internal control and auditing

6.    Helps in budgeting and cost control

Disadvantages of the Imprest System

1.      Requires frequent reimbursement procedures

2.     May cause delays in payment if funds are not replenished on time

3.     Not suitable for organizations with large petty cash requirements

Importance of the Imprest Principle

The imprest principle plays a critical role in financial management by:

·         Promoting transparency in handling petty expenses

·         Ensuring proper authorization of payments

·         Providing accurate financial records

·         Supporting effective internal control systems

Illustration

Kifaru Enterprises maintains a petty cash book using the imprest system with a petty cash float of Ksh 72,000.
On 1 March 2024, the petty cashier had cash in hand amounting to Ksh 31,500.

During the month, the following petty cash transactions occurred:

March 3 – Paid Ksh 15,600 for cleaning services

March 5 – Paid Ksh 1,280 for postage

March 7 – Paid Musa, a creditor, Ksh 7,400

March 9 – Purchased printing paper for Ksh 1,150

March 12 – Bought tea and snacks for staff costing Ksh 1,850

March 15 – Paid Ksh 2,300 for taxi services

March 18 – Purchased office tools for Ksh 4,500

March 21 – Bought files and envelopes for Ksh 3,900

March 24 – Paid Ksh 5,800 for milk supply

March 26 – Bought cleaning materials for Ksh 1,050

March 28 – Paid Ksh 4,200 for bus fare

March 30 – Purchased airtime worth Ksh 1,600

Required

Prepare a petty cash book showing the following analysis columns:

·         Cleaning

·         Staff refreshments

·         Communication and stationery

·         Travel

·         Ledger

Solution

Receipt

Date

Details

Amount

                          Analysis column

The

 

 

 

 

Cleaning

 

Staff refreshment

Communication and stationery

Travel

 

Ledger

31500

1/3/24

Balance b/d

 

 

 

 

 

 

 

40500

1/3/24

Reimbursmet

 

 

 

 

 

 

 

3/3/24

cleaning

15,600

15,600

 

 

 

 

 

5/3/24

Postage

1280

 

 

 

 

 

 

7/3/24

Musa

7400

 

 

 

 

7400

 

9/3/24

Printing paper

1150

 

 

1150

 

 

 

12/3/24

snacks

1850

 

1850

 

 

 

 

15/3/24

Taxi

2300

 

 

 

2300

 

 

18/3/24

Office tools

4500

 

 

4500

 

 

 

21/3/24

Files & envelops

3900

 

 

3900

 

 

 

24/3/24

Milk supply

5800

 

5800

 

 

 

 

26/3/24

Cleaning material

1050

1050

 

 

 

 

 

28/3/24

Bus fare

4200

 

 

 

4200

 

 

30/3/24

Airtime

1600

 

 

 

 

 

 

 

Total

50630

16650

1850

12430

6500

7400

 

31/3/24

Balance c/d

21370

 

72000

 

 

72000

 

21370

1/4/24

Balance b/d

 

50630

1/4/24

reimbursement

 

 

Comparison Between Imprest and Non-Imprest Systems

 

Imprest System

Non-Imprest System

Fixed imprest maintained

No fixed amount

Exact reimbursement

Variable replenishment

Strong internal control

Weak internal control

Easy auditing

Difficult auditing

Self-Assessment

Summit Solutions maintains a petty cash book using an imprest system. The fixed monthly cash float is Ksh. 12,000, which is replenished on the first day of every month.

On May 1, 2024, the petty cashier had a remaining balance of Ksh. 2,100 from the previous month. On the same day, they received a reimbursement check to restore the float to its full amount.

Transactions for May 2024:

May 3: Fuel for delivery van, Ksh. 1,800

May 5: Office cleaning supplies, Ksh. 650

May 7: Box of notebooks, Ksh. 500

May 9: Staff taxi fare, Ksh. 950

May 11: Commuter bus tickets, Ksh. 300

May 14: Photocopying paper, Ksh. 1,200

May 18: Payment to J. Kamau (a creditor), Ksh. 1,500

May 21: Engine oil for bike, Ksh. 850

May 23: Puncture repair for van, Ksh. 500

May 27: Postal stamps and envelopes, Ksh. 750

Required:

Prepare a Petty Cash Book for the month of May 2024 using the following analysis columns:

1.      Motor Expenses

2.     Stationery

3.     Traveling

4.    Miscellaneous / Sundry Ledger

 

 

 

 

 

 

 

 

 

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