Imprest - Definition & Advantages of Imprest | What is Imprest?

Definition 

An imprest is a financial system used by businesses for minor, regular expenses. It can also refer to a specific-purpose loan. However, with the rise of electronic transactions, imprests are being replaced by company credit cards. 

Characteristics 

1. A fixed amount of money is kept in an Imprest account.
2. The account is used for specific petty cash expenses.
3. All transactions are documented and recorded.
4. Usually, a single person handles the Imprest account.

Imprest System Operation 

• It involves setting aside a fixed amount for recurring or unexpected expenses.
• The reserved money is used for specific purposes like petty cash expenses.
• A custodian manages the account, disbursing funds as needed with proper documentation and record-keeping.

Imprest System Steps 

1. Establish a small cash fund, recorded in the business ledger.
2. Document receipts for all charges made from the fund.
3. Periodically refill the fund with receipts from disbursements to maintain a balance.
4. Review the fund for discrepancies between actual and expected cash, based on records.

Purpose of an Imprest Account 

An Imprest account enables businesses to set aside a fixed amount for recurring or unexpected expenses, control expenditures, track expenses, and reduces the risk of fraud with proper documentation and record-keeping. 

Advantages of the Imprest System 

1. Controls expenses by limiting the amount of money available.
2. Facilitates easy tracking of expenses with transaction records.
3. Ensures efficient use of funds by allocating them to specific purposes.
4. Reduces fraud risk through well-documented transactions.

Disadvantages of the Imprest System 

1. Outdated System: Petty cash books are not efficient for current company requirements. 

2. Inconvenient for Larger Expenses: The system isn’t compatible with larger expenses. 

3. Overspending: Without expenditure limits, there is a risk of overspending. 

4. Theft: Without proper controls, petty cash can be misused by employees. 

5. Misappropriation: Liquid assets like petty cash can be misappropriated in the absence of adequate controls.