IGCSE Accounting 0452 - 2.3 Books of Prime Entry - Imprest System

Introduction

The imprest system is a method of controlling petty cash, a small fund of cash held for immediate payments of minor expenses. It ensures that the amount of cash in the petty cash box remains constant.

The Imprest System Explained

The imprest system works by initially inserting a fixed amount of cash into the petty cash box. All payments are then made from this fixed amount. When the cash runs low, the petty cash vouchers are totalled, and an amount equal to the original fixed sum is recorded as an expense. This replenishes the petty cash box to its original level.

Steps in the Imprest System

1. Initial Cash Entry: A fixed sum of cash is placed in the petty cash box.
2. Payments Made: Petty cash vouchers are prepared for each expense.
3. Voucher Recording: Each voucher is recorded in the petty cash book.
4. Reconciliation: The total of all vouchers is calculated.
5. Replenishment: An expense is recorded for the total of the vouchers, bringing the petty cash balance back to the original fixed amount.

The Petty Cash Book

The petty cash book is a special book of prime entry used to record all transactions relating to the petty cash fund. It has the following columns:

• Date
• Particulars (Description of the payment)
• Voucher No.
• Payment
• Balance b/f (Balance brought forward)
• Total
• Balance c/f (Balance carried forward)

Date	Particulars	Voucher No.	Payment	Balance b/f	Total	Balance c/f

Example of a Petty Cash Book Entry:

A voucher for £5.00 is received for stationery. The entry in the petty cash book would be:

Date	Particulars	Voucher No.	Payment	Balance b/f	Total	Balance c/f
2024-07-26	Stationery	PCV-001	£5.00	£50.00	£5.00	£45.00

The General Journal Entry

When the petty cash fund is replenished, a general journal entry is made to record the expense.

The journal entry will debit 'Petty Cash Expense' and credit 'Petty Cash'. The amount debited will be equal to the total of the petty cash vouchers.

$$ \begin{array}{c|c} Account & Debit & Credit \\ \hline Petty Cash Expense & £[Total of Vouchers] & \\ Petty Cash & & £[Total of Vouchers] \\ \end{array} $$

Advantages of the Imprest System

• Simple to administer.
• Easy to prepare and check.
• Provides control over petty cash expenditure.
• Reduces the risk of theft.

Disadvantages of the Imprest System

• Requires regular reconciliation.
• May not be suitable for businesses with large petty cash requirements.

Example Calculation

A business starts the petty cash fund with £50.00. During the month, the following payments are made:

• Stationery: £5.00
• Telephone calls: £12.00
• Office supplies: £8.00
• Lunch for staff: £15.00

Calculation:

1. Total payments: $5.00 + $12.00 + $8.00 + $15.00 = $40.00$
2. Expense entry in the journal: Debit Petty Cash Expense £40.00, Credit Petty Cash £40.00
3. Balance in petty cash: $50.00 - $40.00 = $10.00$

The petty cash fund is replenished to £50.00.