CHAPTER 8

IMPREST CASH SYSTEM

This chapter deals with the different features of imprest cash system. It focuses on
the recording of petty cash fund upon the establishment, replenishment, adjustment and the
reversing entry.

LEARNING OBJECTIVES:
The student should be able to:
1. Enumerate the different features of imprest cash system.
2. Prepare journal entries to record the

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a. establishment of petty cash fund
b. replenishment of expenses paid out of petty cash fund

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c. adjustment at the end of the accounting period
d. adjustments made at the end of the accounting period as reversing entries at
the beginning of the next accounting period.

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3. Identify the contents of the petty cash fund as to:

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a. Cash on hand ( bills and coins)
b. Unreplenished expenses for replenishment
c. Unliquidated cash advances
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4. Compute the petty cash balance at the end of the accounting period.
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Safeguarding cash is very important in every organization. Cash is the most

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susceptible item to fraud among the assets. Therefore, a quality internal control must be
implemented. In a sole proprietorship type of business organization, safeguarding cash is not
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a big problem. The usually practice in a sole proprietorship is that, the proprietor is also the
manager of the firm. There is a total control of cash since the owner is the one who signs the
checks.
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In a bigger business organization such as corporation, most of the stockholders have

less participation in the business operations. The management is centralized under the board
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of directors or trustees. To ensure the safety of assets especially cash, control must be
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applied. One way of safeguarding cash is the application of Imprest System.

The important features of the Imprest System of handling cash of the business firms are
as follows:

1. All cash collections must be deposited intact. No portion of cash received by the
business firm can be used for payments for whatever expenses or disbursements.
This means that the same amount received will be exactly deposited in the bank.
2. All disbursements or payments are made thru checks. Checks must be signed by
the authorized officers of the business organization, example: a president and a
treasurer or a vice president and a comptroller. Usually, two signatories are required
to sign the check but the firm may submit four signatories. The other two will serve

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 as alternate in the absence of the primary signatories so that business operations will
not be hampered.
3. Maintenance of a petty cash fund. Under the imprest system of handling cash, all
payments must be made thru check. This practice is very impractical, inconvenient and
even costly if the amount to be paid is very small. The petty cash fund is maintained to
take care of small expenses like transportation expenses, office supplies and others for
practicality and convenience purposes. .

The amount of petty cash fund will depend upon the nature and type of business
firms. It is also dependent upon the amount to be set up. Example: P3,000, P5,000 and even
P10,000 or more. The petty cash fund will be under the custody of a petty cash fund
custodian or cashier.

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There are two methods used in handling petty cash fund namely: the imprest method

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and fluctuating method. Our discussion will focus on the imprest method.

Establishment of petty cash fund

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When the petty cash fund is established, a voucher and check are prepared payable to
the petty cash fund custodian or cashier.
The check will be presented to the bank by the payee for encashment. The custodian
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will keep said amount in a safety box. The petty cash fund should be used in paying petty
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expenses. A petty cash voucher will be prepared and supported with documents such as
official receipts or sales invoices and must be approved first by the authorized personnel.
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To illustrate: Jude Enterprises established a petty cash fund for P5,000 on January 2, 2019.
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The fund will be used for expenses amounting to P500 and below. The entry
to record the establishment of petty cash fund is:
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2019
CP

Jan 2 Petty Cash Fund 5,000

Cash in Bank 5,000
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To record the establishment of petty cash fund.

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Petty cash fund replenishment

Once the petty cash fund is almost exhausted, the fund must be replenished. A
summary of expenses is prepared and submitted to the accounting department for voucher
preparation supported with petty cash vouchers and other documents. The voucher and
check are payable to the petty cash custodian and again, said check is to be encashed in the
bank. The fund should be always the same unless it increased or decreased depending on the
need of the company. The composition of the petty cash fund may vary at any given point of
time but the total amount remains unchanged.

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 There is no entry upon payment of expenses using the petty cash fund. The journal
entry will be prepared upon the replenishment by debiting expenses and crediting cash in
bank.
To illustrate: The petty cash custodian of JUDE Enterprises paid expenses from the petty
cash fund from January 2 to 15, 2019. The fund shows the following:

Cash 1,689.30
Expenses paid for replenishment:
PCV # 1 Office supplies 395.50
2 Water 380.00
3 Advances to employees 500.00

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4 Repairs and maintenance 475.00
5 Office Supplies 375.20

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6 Transportation 360.00
7 Repairs and maintenance 475.00
8 Transportation 350.00 3,310.70

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Total 5,000.00
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The entry to record the replenishment of petty cash fund should be:
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Jan 15 Office Supplies 770.70

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Water 380.00
Advances to employees 500.00
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Repairs and maintenance 950.00

Transportation Expenses 710.00
Cash in Bank 3,310.70
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To record the replenishment of petty cash fund per PCV# 1 to

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8 dated Jan 2 to 15, 2019.

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Petty cash fund is not credited upon the replenishment. The Petty Cash Fund account
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is credited only if the fund is decreased or discontinued, and at the end of the accounting
period where adjustment should be made to recognize all expenses incurred during the
period. Cash in bank is credited instead of petty cash fund upon replenishment. Thus, the
petty cash fund account remains the same, the amount of fund is still P5,000. The check
amounting to P3,310.70 is encashed by the petty cash custodian and the cash is kept in the
safety box to be added to the remaining amount of P1,689.30 making a total of P5,000.

The same procedure will be applied every replenishment made. Most business firms
use a separate special journal called petty cash book. Based on the petty cash book a
summary is prepared and the petty cash vouchers support the prepared voucher together with
other documents.

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 A petty cash book will be used in recording expenses out of petty cash fund as shown
below:
DATE PAYE PCV AMOUNT Office Trans- Water Repairs Advances
E # Supplies portation to
employees
2019
Jan 2 Jolly 1 395.50 395.50
3 Gay 2 380.00 380.00
4 Joy 3 500.00 500.00
6 Happy 4 475.00 475.00
12 Merry 5 375.20 375.20
13 Lovely 6 360.00 360.00
14 Pretty 7 475.00 475.00

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15 Beauty 8 350.00 350.00

3,310.70 770.70 710.00 380.00 950.00 500.00

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Adjusting the petty cash fund:

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At the end of the accounting period, the correct amount of petty cash fund will be
reflected in the balance sheet. Unreplenished expenses will be recorded to adjust the account
to the correct fund balance.
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To illustrate: At the end of the accounting period, the petty cash fund of Jude Enterprises is
composed of the following:
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Cash 2,950.00
Expenses paid for replenishment:
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PCV # 51 Transportation 375.00

52 Postage 100.00
53 Repairs and Maintenance 500.00
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54 Transportation 350.00
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55 Office Supplies 475.00

56 Office supplies 250.00 2,050.00
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Total 5,000.00
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The entry to record the adjustment of petty cash fund should be:
Dec 31 Transportation Expenses 725.00
Postage 100.00
Repairs and Maintenance 500.00
Office Supplies 725.00
Petty Cash Fund 2,050.00
Adjust petty cash fund.

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Reversing entry:

The adjusting entry prepared at the end of the accounting period relating to petty cash
fund must be reversed at the beginning of the next accounting period.
2019
Jan 1 Petty Cash Fund 2,050.00
Transportation Expenses 725.00
Postage 100.00
Repairs and Maintenance 500.00
Office Supplies 725.00
To reverse the adjusting entry made on Dec. 31, 2019.

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Increasing and decreasing petty cash fund.

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The petty cash fund may be increased or decreased depending on the need of the
company. It may even be discontinued if the management wishes to.

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Journal Entry to increase the petty cash:

Petty Cash Fund xx

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Cash in Bank xx
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Journal Entry to decrease or discontinue the petty cash fund:

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Cash xx
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Petty Cash Fund xx

JUDE ENTERPRISE
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Dungon C, Jaro, Iloilo City

CP

PETTY CASH VOUCHER

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PCF# 0001
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DATE:________
PAYEE: __________________________

PARTICULARS AMOUNT

Office Supplies 395.50

APPROVED BY RECEIVED BY:

Note: The style of form varies from one company to the other.

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 Exercise 7 – 1. The following data pertains to the petty cash fund of Morrice Co.

2019
Dec 1 Morrice Co. established a petty cash fund amounting to P 6,000. A check is
prepared payable to Chris, a petty cash fund custodian. The petty cash fund
will be maintained under the imprest system. It will be used in paying bills
and other expenses not exceeding Five Hundred pesos (500) only.

5 The petty cash fund contains the following:

Cash 1,425.00
Petty cash vouchers paid for replenishment
PCV# 1 Office supplies 450.00

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2 Transportation 400.00
3 Store Supplies 495.00

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4 Advances to Employees 500.00
5 Office Supplies 480.00
6 Repairs and Maintenance 470.00

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7 Store supplies 500.00

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8 Telephone expense 375.00
9 Advances to Employees 450.00
10 Repairs and Maintenance 455.00 4,575.00
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3,000.00
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The petty cash fund custodian replenished the fund.

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31 The petty cash fund was not replenished and contains the following at the
end of the accounting period:
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Cash 3,150.00
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Petty cash vouchers paid for replenishment

PCV# 30 Transportation Expense 400.00
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31 Store Supplies 450.00

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32 Office Supplies 475.00

33 Advances to Employees 400.00
34 Store Supplies 420.00
35 Office supplies 380.00
36 Transportation Expense 325.00 2,850.00
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6,000.00
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Instruction:
1. Prepare journal entries to record the establishment, replenishment, and
adjustment of the petty cash fund.
2. Prepare reversing entry on January 1, 2020.

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Exercise 7-2
Ramil Co. established a petty cash fund using the imprest system on June 1, 2019.
This fund will be used in paying expenses amounting to P 1,000.00 and below. A check was
issued payable to Jessa, a petty cash fund custodian amounting to P 10,000.

June 5 The fund was replenished. Analysis of the fund showed:

Cash 4,000.00
Petty cash vouchers paid for replenishment
PCV# 1 Store Supplies 900.00
2 Transportation 300.00
3 Office supplies 890.00

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4 Advances to employees 700.00
5 Store supplies 750.00

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6 Office Supplies 600.00
7 Transportation expense 500.00
8 Miscellaneous 770.00

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9 Transportation expenses 590.00 6,000.00

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Total 10,000.00
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25 The fund was decreased by P 3,000.
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30 The fund was replenished. Analysis of the fund showed the following:
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Cash 3,050.00
Petty cash vouchers paid for replenishment
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PCV# 10 Miscellaneous 350

11 Transportation 400
12 Office supplies 300
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13 Repairs and maintenance 500

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14 Store supplies 570

15 Telephone expenses 330
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16 Store Supplies 460

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17 Water 240
18 Donations 800
Total 3,950.00
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7,000.00
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Required: Prepare journal entries to record the above transactions.

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