The Imprest System of Managing Petty Cash

Definition of Petty Cash

Petty cash is a small amount of money that a company uses to pay for small and urgent expenses without writing a check or following the procurement process. The amount of petty cash (also known as the petty cash fund/float) varies by company or organization. The amount depends on the operations of the organisation.

One person is designated as the petty cash custodian usually a Junior Accountant. This person is responsible for disbursing the small amounts subject to approval and for documenting each payment with a petty cash voucher and receipt.

Imprest System Process

1. Staff that need to use cash fill in a petty cash voucher and its approved by their line manager or a Senior Accountant
2. The staff gives the Cashier the duly filled and fully approved petty cash voucher
3. The Cashier disburses the cash to the respective staff
4. The Cashier files the voucher
5. The staff spends the cash and obtains a valid receipt
6. The staff goes back to the cashier and gives him/her any balance and the receipt
7. The petty cashier updates the voucher with the correct figures and files the vouchers and the receipts
8. When the float reaches the reimbursement point (usually a percentage of the total float), the Cashier prepares a reimbursement request. The request is a summary of all spending and attachment of all vouchers and respective receipts.
9. A Senior Accountant approves the reimbursement and a cheque is drawn for the amount requested
10. The cycle is repeated

Posting of Petty Cash and Control

Since the requested check is drawn on the organization’s bank account, the Cash account (not the Petty Cash account) will be credited. The debits will go to the expense accounts indicated by the petty cash receipts, such as postage expense, supplies expense. In other words, the general ledger account Petty Cash is not involved in the replenishment. (Replenishment means getting the total of the currency and coins back to the imprest amount.) Under the imprest system, the petty cash custodian should at all times have a combination of currency, coins, and petty cash receipts that equals the imprest petty cash balance.

Control over the petty cash occurs during the replenishment process. The person approving the check for the petty cash custodian to cash should review the petty cash receipts and attach them to the check request. Control can also occur when an independent person confirms that the petty cash custodian’s cash and receipts adds up to the imprest amount.

Policy Issues Related to Petty Cash Management

1. Petty cash should never be used for expenses of personal nature’
2. The float amount should be standard and reviewed regularly to ensure its sufficient for operations
3. A company can choose to have a mobile line to hold the Mpesa float
4. Any transaction without a receipt should have an undertaking signed by the respective staff
5. Petty cash should never be used for items that need to follow procurement process
6. The petty cash policy should set out clearly the limit of amounts that can be spent from petty cash at a go.
7. Petty cash should always be secured in a safe and insured accordingly.

Join the conversation and let me know whether this is the way petty cash is managed in your organisation.

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