How to prepare a petty cash book applying IMPREST principle.

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