What Is Imprest?
An imprest is a cash account a business relies on to pay for small, routine expenses. Funds contained in imprests are regularly replenished, in order to maintain a fixed balance. The term “imprest” can also refer to a monetary advance given to a person for a specific purpose.
- Imprest refers to a type of cash account maintained by a company used to pay for small incidental or routine expenses.
- A fixed account balance is established in the imprest account and refunded as needed when money is withdrawn for items like payroll, travel, or petty cash.
- Because of its small and fixed nature that is easily monitored, imprest discourages unauthorized or lavish expenses.
How Imprest Works
The most well-known type of imprest is a petty cash account, which is used to cover smaller transactions when it’s impractical or inconvenient to cut checks. Such accounts maintain a set amount of cash on-site, which can be used to reimburse employees and pay for small expenses. Petty cash funds are typically handled by custodians who monitor the account and dispense cash to employees, who in turn furnish business-related receipts.
Imprests may also be used to cover employee payroll, dividends, employee travel, and bonuses. After these outgoing expenses are paid, the fund is typically reimbursed by capital from the company's primary bank account.
Imprests deter the use of unauthorized spending because the funds are earmarked for specific purposes. Consequently, imprests typically pay out the same amount of money on a regular basis, which ideally brings the account to a near-zero balance, before it's automatically replenished with that same set amount of money. This system makes it easier to monitor expenses, flag discrepancies, and ultimately detect fraud.
The Imprest System
The imprest system involves the following steps:
- 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 increasingly rely on electronic transactions, the imprest system is steadily falling out of favor. It's often easier to use a company credit card than an imprest, because the former offers electronic documentation of transactions, and doesn't trigger a need to replenish any outgoing funds.