Petty Cash And The Imprest Cash Float System

PETTY CASH AND THE IMPREST CASH FLOAT SYSTEM

Petty Cash

• Many business normally keeps a small amount of money to meet some small cash disbursements like payment of postage, medical claims, staff traveling claims. As the disbursements are for petty item hence the name petty cash

Petty Cash Imprest System

Salient features:

• Under this Imprest system, the amount of  money in the petty cash is kept at a fixed sum or float which can be $100.00 ( depending on the size of the organization and its uses)

• An initial float is given to the cashier or the custodian. At each balancing period or when the float is depleted say by 50%, a cheque is issue to reimburse the exact amount of disbursements that have been utilized.

• If we were to check at any one point of time, we will find that the petty cash custodian needs to substantiate the abovementioned actual disbursements in the following form:

·      Hence, when the petty cash is topped up, the amount of the top up should always be the total of the voucher payments since the last float.

• The petty cash book looks much the same as the main cash book.

ILLUSTRATION

Let’s say we have established an initial petty cash float of $500.

On 1/1/06, we gave this $500 to Mr A who is now the petty cash custodian.

Mr. A has been issue petty cash for paying staff claims and subsequently on 19/1/06, he has only $50 left, so he will  seek reimbursement in the form of $450 to top up the petty cash float to become the original float of $500

ADVANTAGES OF KEEPING IMPREST SYSTEM FOR PETTY CASH

• The Imprest Petty Cash Float System is an important internal control tool to check cash and its usage or theft. Every time when the person who control the bank account/disbursement to petty cash is able to have a closer internal check on the actual petty cash expenditure incurred.

· It provides a very efficient and convenient deterrent tool on any petty cash theft as surprise petty cash count can be conducted based on the concept that all actual petty cash vouchers($) + remaining cash($) should able to tally back to the petty cash float ($).

SOME SALIENT POINTS TO NOTE:

• The petty cash float should be reviewed to ensure there should not be too frequent disbursement of petty cash which means that the initial establishment of the float is too low. It’s good to review the past three to six months petty cash disbursement before establishing the petty cash float.

• Sometimes, it is not the fault of the float but the definition of the term petty cash which should strictly be used for petty item that perhaps should be less than $50.00 (say)

• From a practical commercial standpoint we have mentioned that only petty items should be disbursed vide the petty cash. However, don’t forget about some very urgent necessities which also needs to be paid by petty cash say for example, the urgent need to photocopy or plan printing many urgent sets of tender documents, etc which might suddenly deplete the petty cash float. However, at all times, the petty cash should be designed with the main objective of disbursement of very petty items and wherever possible any amount above certain threshold should be by cheques.

• Incidentally, when a company is in distress, restructuring experts often asked that the distress company’s management to be on a look out for all kinds of disbursements which  definitely even include petty cash items which is likened a rat is nibbling away scarce limited cash resources whether how small it is it.

• Imprest Cash Float system are particularly shown to be useful when a company has to operationally control many branches or overseas subsidiaries who need cash to run properly. If properly implemented, it deters cash frauds.