Petty cash funds advantage

Accounting
Tutor: None Selected Time limit: 1 Day

Petty cash funds are maintained on an imprest basis. Explain the advantage of using the imprest basis in accounting for petty cash.
Nov 29th, 2014

An imprest system of petty cash means that the general ledger account Petty Cash will remain dormant at a set amount. For example, if the petty cash custodian is entrusted with a locking bag containing $100 of currency and coins, then the Petty Cash account will always report a debit balance of $100. This $100 is the imprest balance. As long as $100 is adequate for the organization's small disbursements, then the general ledger account Petty Cash will never have an entry again.

When the coins and currency in the locking bag get low, the petty cash custodian will request a check to replenish the coins and currency that were disbursed. Since the requested check is drawn on the organization's checking account, the Cash account (not the Petty Cash account) will be credited. The debits will go to the expense accounts indicated by the petty cash receipts, e.g. postage expense, supplies expense. In other words, the general ledger account Petty Cash is not involved in the replenishment. (Replenishment means getting the total of the coins and currency in the locking bag back to $100.)

Under the imprest system, the petty cash custodian should at all times have a combination of coins, currency, and petty cash receipts equal to $100, the imprest amount.

Control occurs through the review of the petty cash receipts attached to each check request for replenishment. It also occurs by occasionally confirming that the items in the locking bag do indeed add up to the imprest amount. 

Nov 29th, 2014

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