An imprest is a dedicated cash account a business uses to handle small, routine expenses. To maintain a fixed balance, funds in imprest accounts are regularly replenished.
The term ‘imprest’ can also refer to a monetary advance given to an individual for a specific purpose.
Key Insights
- Imprest is a cash account maintained to cover small incidental or routine expenses.
- An established fixed balance in an imprest account is refunded as money is withdrawn for items such as payroll, travel, or petty cash.
- The fixed nature of an imprest account discourages unauthorized or lavish expenses due to its easy monitoring.
How Imprest Systems Work
One of the most recognized types of imprest is a petty cash account, used for small transactions where issuing checks is impractical or inconvenient. These accounts hold a set cash amount on-site, available for reimbursing employees and covering small expenses. Custodians typically manage petty cash funds, distributing cash to employees in return for business-related receipts.
Imprests can also fund employee payroll, dividends, travel, and bonuses. After covering these costs, funds are usually replenished from the company’s primary bank account, ensuring the same amount is reinstated regularly to manage and monitor expenses effectively.
By allocating specific purposes to funds, imprests significantly reduce unauthorized spending. Typically, an imprest account reaches a near-zero balance before being automatically replenished with the designated amount, simplifying expense monitoring and fraud detection.
Unveiling the Imprest System
An imprest system operates in the following sequential steps:
- Establish a petty cash fund with a fixed cash amount, recorded in the company ledger.
- Document expenses paid through the petty cash fund with receipts.
- Regularly replenish the fund using disbursement receipts to maintain a fixed balance.
- Monitor for any discrepancies between expected cash (based on documentation) and actual cash, investigating any inconsistencies.
The Future of Imprest Systems
As businesses increasingly adopt electronic transactions, traditional imprest systems are gradually declining. Company credit cards generally provide easier electronic documentation of transactions, eliminating the need to replenish outgoing funds.
How is an Imprest Account Used?
Businesses use imprest cash to cover incidentals like office supplies, small reimbursements, or minor expenditures, similar to petty cash. However, imprest accounts should not be used for significant expenses such as utility bills or asset purchases.
Etymology of ‘Imprest’
The term originates from early Italian or medieval Latin ‘imprestare,’ meaning to lend. In contemporary usage, an imprest signifies a small advance of funds allocated for incidental expenses, requiring replenishment after use.
Alternate Uses of ‘Imprest’
Beyond business-related funds, ‘imprest’ also describes money advanced to someone performing work on behalf of a government. In such cases, the government provides funds before the completion of work.
Related Terms: Petty Cash, Dividends, Bonuses, Electronic Transactions.
