What is 'Imprest'

An imprest is a cash account that a business uses to pay for small, routine expenses. A fixed balance is maintained in the account, and it is replenished routinely to maintain that balance. Alternatively, an imprest can refer to a monetary advance given to a person for a specific purpose.

The most well-known type of imprest is a petty cash account. Petty cash is used for transactions for which it doesn't make sense to go through the hassle of writing a check. It is typically a set amount of cash held on-site that a business can use to reimburse employees and pay for small expenses. Petty cash funds are typically handled by a custodian, who monitors the account and hands out cash to employees in exchange for business-related receipts.

Imprests are also used for purposes such as employee payroll, dividends, employee travel and bonuses. Once the expenses are paid, the fund is reimbursed by the company's primary bank account.

BREAKING DOWN 'Imprest'

The benefit of imprests is that it's harder to use their funds for unauthorized expenses because they are set aside for specific purposes. They usually pay out the same amount of money on a regular basis, which ideally brings the account close to a zero balance, then they are automatically replenished with that set amount. If there are discrepancies, it's not hard to pinpoint what went wrong. It is an easy way to both closely monitor expenses and protect against fraud.

The Imprest System

The imprest system was developed to track and document cash expenses and how they are used, following a general process:

  • A petty cash fund is established, with a set amount of cash. This is recorded in the company's ledger.
  • Any expenses paid through the petty cash fund must be documented with receipts.
  • The fund is replenished regularly with disbursement receipts to maintain a fixed balance.
  • The fund is monitored closely for any discrepancies between expected cash (based on documentation) and actual cash. If any discrepancies exist, they are investigated.

The Future of Imprests

As companies transition to heavier reliance on electronic transactions, the imprest system is falling out of favor. It can be much easier to just use a company credit card than to use an imprest, since the success of the imprest system depends on the accuracy of its documentation. Also, it is important to know and monitor the exact amounts paid through the imprest on a regular basis so that replenishment amounts are sufficient.

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