What is an imprest system of petty cash?

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 amount of petty cash (also known as the petty cash fund) varies by company or organization. For now, let's assume that the amount is $100.

One person is designated as the petty cash custodian. This person is responsible for disbursing the small amounts
and for documenting each payment with a petty cash receipt.

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. If the amount of petty cash is $100, then the Petty Cash account will always report a debit balance of $100. This $100 is the imprest balance. As long as $100 is adequate for the organization's small disbursements, then the general ledger account Petty Cash will never be debited or credited again.

When the currency and coins on hand gets low, the petty cash custodian will request a check to replenish the coins and currency that were disbursed. Since the requested check is drawn on the organization's checking 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.) The petty cash custodian will cash the check and add the amount to the other cash.

Under the imprest system, the petty cash custodian should at all times have a combination of currency, coins, and petty cash receipts that equals $100 (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.

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