Imprest Amount

An imprest amount is the fixed sum at which a fund, most often a petty cash fund, is established and to which it is brought back each time it is replenished. Under an imprest system, the custodian of the fund pays small expenses from it, keeps receipts for each payment, and periodically asks for a reimbursement equal to the total of those receipts. The reimbursement restores the fund to exactly the imprest amount, so at any moment the cash on hand plus the receipts for payments made should equal that fixed figure.

The imprest method is a basic internal control. Because the fund's total is always known, it is easy to check, and any shortfall or excess shows up quickly. The same principle is used beyond petty cash, for example in imprest bank accounts that are topped up to a set balance to cover payroll or a branch's expenses, and in a zero-balance account, a variation in which the target balance is nil.

An imprest fund normally runs through four steps:

1. The company decides on an imprest amount large enough to cover a few weeks of small payments, writes a cheque or makes a transfer for that amount, and gives the cash to a custodian, often kept in a locked cash box.
2. The custodian makes small payments, such as postage, taxi fares or office snacks, and obtains a receipt or completes a voucher for each one.
3. When the fund runs low, or at the end of each period, the custodian totals the vouchers by expense type and requests replenishment.
4. The company issues cash equal to the vouchers, records the expenses, and the fund returns to its imprest amount.

A small company sets up a petty cash fund with an imprest amount of $500. The establishing journal entry debits petty cash and credits cash in bank for $500. No entries are made for individual payments while they happen; the receipts simply accumulate.

At month end the box contains $68 in cash and vouchers totaling $427: postage $120, office supplies $185, delivery fees $90 and staff refreshments $32. Cash plus vouchers equals $495, so the fund is $5 short. To replenish it to $500, the company writes a cheque for $432 and records:

• A debit to postage expense for $120, office supplies expense for $185, delivery expense for $90 and miscellaneous expense for $32.
• A debit to cash short and over for $5.
• A credit to cash in bank for $432.

The petty cash account itself is not touched, because its balance remains $500. It is changed only if the company decides to increase or decrease the imprest amount, for example raising it to $750 because the fund runs out too quickly. In that case, petty cash is debited and bank is credited for the $250 increase.

The imprest method works only if it is properly controlled. Good practice includes:

• Appointing a single custodian, so responsibility is clear, and keeping the cash physically secure.
• Setting a maximum amount for any single payment, with larger items paid by cheque or electronic transfer through normal accounts payable procedures.
• Requiring a receipt or signed voucher for every payment, and having the replenishment approved by someone other than the custodian.
• Carrying out surprise counts, in which a supervisor checks that cash plus vouchers equals the imprest amount, as part of regular cash reconciliation.
• Replenishing the fund at every period end, even if it is not low, so that all expenses are recorded in the right period.

On the balance sheet, the imprest amount is usually combined with other cash balances, since petty cash is rarely material. Frequent or large shortages recorded in cash short and over are a warning sign of errors or theft and should be investigated. Many businesses have reduced their use of petty cash in favor of company payment cards and expense management apps, but the imprest principle, a fixed float that is restored by reference to documented spending, remains common for cash floats in retail tills, in field offices and in many public sector bodies, where it is often called an imprest account.