Topic: THE IMPREST SYSTEM

Meaning of Petty Cashbook

The petty cashbook is a book that keeps track of every small expenditure of the company cash.
The funds used for small payments are known as petty cash and the person whose job is to make and
record those payments is known as a petty cashier. In most cases, it's a ledger book and not a
computer record. The petty cashbook is used to record small expenses such as postage stamps, envelops,
transport fares, newspapers, stationery and other small items needed in the office. The word ‘petty’
means small. We cannot pay for them with cheques because they are too small. The cost of each of the
small items is recorded in the petty cash book instead of the ledger. The total expenses are transferred to
the ledger as a petty cash account.

Columns in a Petty Cashbook Columns in a Petty Cashbook

DEBIT SIDE CREDIT SIDE
1. Amount On the credit side we have the analysis of
1. 2. Date expenses of a ledger account. This has
3. Particulars of expenses different columns for different expenses e.g.
4. Voucher number stationery, postage, transport, etc.
5. Total amount

Recording of Receipts and Payments in Petty Cashbook

1. The credit entry is made in the cash book
2. The debt entry is made in the petty cash book
3. The entries on the credit side of the petty cash book are first made in the total column and then,
extended into the relevant expenses column,
4. The expenses columns have various headings for different expenses,
5. The last column of the petty cash book is known as a ledger account.

Advantages of imprest system of petty cashbook

i. The main (or head) cashier is relieved of maintaining record of petty payments.
ii. Small payments are not stuffed in the main cash book.
iii. Complete and reliable check is maintained on small items of expenses.
iv. It is automatically balanced.

Disadvantages of the petty cashbook

i. Petty cash is prone to accounting errors due to a lack of any kind of documentation for
tracking the cash.
ii. There is a chance of theft of petty cash by employees and it will be difficult to track the
source.

Preparation of a Petty Cashbook

Example
Record the following in the relevant columns of the petty cash book of Chillington, a sole proprietor.
Jan ₦2,00
Petty cashier received an Imprest amount of
1 0
2 Paid for bus fare ₦200
4 Paid for postage ₦150
8 Paid for duplicating paper ₦300
12 Bought envelops ₦250
16 Paid Mr. Kalu ₦500
25 Bought office pins ₦100
26 Bought stamps ₦100
30 Paid taxi fare ₦200

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SOLUTION
In the Books of Chillington
Petty Cash Book for January
DR CR
Analysis of Payments
Amount Voucher Total
Date Particulars
Received No Amount
Stationer
Postage Transport Office Account
y
N N N N N N N
2,000 Jan 1
2 Bus fare 1 200 200
4 Postage 2 150 150
8 Paper 3 300 300
Envelope
12 4 250 250 500
s
16 Mr. Kalu 5 500
25 Office pins 6 100 100
26 Stamps 7 100 100
30 Taxi fare 18 200 200
1,800
31 Bal. c/d 200
2,000 2,000
200 Feb 1 Bal. b/d

Imprest System
The imprest system is a method used in controlling the amount of money to the petty cashier. A fixed
amount called Imprest is given to the cashier weekly or monthly to pay for small expenses. At the end of
the period, the petty cashier gives account of what she spends and the balance remaining. The amount
spent will be reimbursed. This process of giving a petty cashier some amount of money for petty items at
the beginning of every month is called “Imprest system”. The imprest system is an effective way of
making money available for minor expenses and keeping accurate records in the petty cash book. The
sum of money giving to a petty cashier is called “Cash float”. Also, the document used in raising petty
cash is known as a “Petty Cash Voucher”

Terminologies used in Imprest System

Petty Cash Book

Petty Cash Book is used for recording payment of petty expenses, which are of smaller
denominations like postage, stationery, conveyance, refreshment, etc. Person who maintains petty
cash book is known as petty cashier and these small expenses are termed as petty expenses.

Chief Cashier or Main Cashier

A Head Cashier, Main Cashier or Senior Cashier, is a senior management staff who oversees the
cashier staff and overall functions of the accounts and finance department of an organisation.

Petty Cashier
the person in an office who is in charge of a small amount of money kept for buying small
things when they are needed: The petty cashier keeps receipts for milk, coffee, and so on bought
for the office kitchen.

Float
The term cash float is used in the imprest system to refer to the cash given to the petty cashier at
the start of business hours. Aside from complying with business policy, the amount is very useful.

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Disbursement
Disbursement means releasing cash from the float to an employee or staff who has incurred petty
expenses on behalf of the organisation. An imprest account is used for handling minor disbursements
whereby a fixed amount of money is set aside for this purpose. Disbursements are made as needed
with a receipt or petty cash voucher being completed in each case.

Reimbursement
Put simply, reimbursement is money paid to an employee, customer, or another party as a repayment
for a business expense they have paid out of their own pocket. Common examples of reimbursement
are business expenses, insurance costs, and overpaid taxes (although reimbursement is not subject
to taxation).

Analysis Column
Analysis columns are columns in a petty cashbook for recording individual disbursements after they
are entered in the total column on the credit side of the petty cashbook. There are pre-existing
columns for the usual expenses that recur quite frequently for an organization. So if an
organization has daily expenses for food, stationery, postage, etc. these will be individual columns in
the petty cash book.

Imprest System
The imprest system is a form of financial accounting. The most common is petty cash. The basic
characteristic of an imprest system is that a fixed amount is reserved, which after a certain period of
time or when circumstances require, because money was spent, will be replenished.

Petty Cash Voucher

A petty cash voucher is a document containing the information required to justify taking and
spending any money from the petty cash jar. These documents make up part of the records inside
a petty cash book, and are most often used in small businesses.

Illustration
Sept 1 The cashier gives N50 as float to the petty cashier
Payments out of petty cashier during September N
'' 2 Petrol 6
'' 3 J. Sabiga – traveling expenses 3
'' 3 Postages 2
'' 4 D. Ikeme – traveling expenses 2
'' 7 Cleaning expenses 1
'' 9 Petrol 1
'' 12 K. Udoh – travelling expenses 3
'' 14 Petrol 3
'' 15 L. Olija – traveling expenses 5
'' 16 Cleaning expenses 1
'' 18 Petrol 2
'' 20 Postages 2
'' 22 Cleaning expenses 1
'' 24 G. Gyuse – traveling expenses 7
'' 27 Settlement of C. Ndem account in the Purchases Ledger 3
'' 29 Postages 2
'' 30 The cashier reimburses the petty cashier the amount spent in the month.

The Analytical Petty Cashbook containing the items illustrated above is shown below:

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The receipts column represents the debit side of the petty cashbook. On giving N50 to the petty
cashier on 1 September the credit entry is made in the cashbook while the debit entry is made in the
petty cashbook. A similar entry is made on 30 September for N44.

The entries on the credit sided of a petty cashbook are first of all made in the totals column, and then
are extended into the relevant expenses column. At the end of the period, in this case a month,
payments are totaled, it being made sure that the total of the totals column equals the sum of the
other payments totals, in this case N44.

To complete the double entry, the total of each expense column is debited to the relevant expense
account in the general ledger, the folio number of the page in the general ledger then being shown
under each column.

The end column has been chosen as a ledger column. In this column items paid out of petty cash
which needs posting to the ledger other than the general ledger are shown. This would happen if a
purchases ledger account was settled out of petty cash, or if a refund was made out of the petty cash
to a customer who had overpaid his account.

Staff
Receipt Folio Date Details Vcr Total Motor Trav. Postage Cleanin Lgr. Ledger
# Exp. Exp. g folio a/c
N N N N N N
50 CB1 Sep 1 Cash
9 Sep 2 Petrol 1 6 6
Sep 3 J. Sadiya 2 3 3
Sep 3 Postages 3 2 2
Sep 4 D.Ikeme 4 2 2
Sep 7 Cleaning 5 1 1
Sep 9 Petrol K 6 1 1
Sep1 Udoh 7 3 3
2 Petrol 8 3 3
Sep1 L. Olisa 9 5 5
4 Cleaning 10 1 1
Sep1 Petrol 11 2 2
5 Postages 12 2 2
Sep1 Cleaning 13 1 1
6 G..Gyuse 14 7 7
Sep1 C. Ndem 15 3 PL1 3
8 Postages 16 2 2 8
Sep2
0
Sep2
2
Sep2
4
Sep2
7
Sep2
9
44 12 20 6 3 3
GL17 GL29 GL44 GL64
44 CB2 Sep3 Cash
2 0
Sep3 Balance c/d 50
0

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 94 94
50 Oct 1 Balance b/d

REVISION QUESTIONS
1. Define a petty cash book.
2. List three items contained in a petty cash book.
3. Explain the following terms: (i) petty cashier (ii) cash float (iii) petty cash voucher
(iv) reimbursement (v) petty cash.
4. ADE ENTERPRISES commenced business on January 1, 2011 with a capital of N16,000.
The following transactions were carried out during the month of January.
Jan 1 Purchased furniture by cash N2,400
Jan 2 Purchased goods stationary N200 cash
Jan 3 Purchased goods by cash N3,500
Jan 4 Purchased goods on credit from Agogo N5000
Jan 15 Sold goods for cash N6,000
Jan 18 Sold goods to charlotte Umedo on credit N2,400
Jan 20 Paid advertisement expenses N6,000 cash
Jan 25 Paid Agogo N3,500 cash being part of settlement of goods purchased
Jan 28 Paid rent in cash N300
Jan 31 Paid salaries and salaries N600 cash

You are required to write up the ledger accounts recording the above transaction extract and
any relevant entries.

5. Enter the following transactions in a petty cash book, having analysis columns for motor
expenses, postages and stationeries, casual labour, sundry expenses and a ledger column. This
is to be kept on the imprest system, the amount spent to be reimbursed on the last day of the
month. The opening petty cash float is N100
2011 N
May 1, Casual labour 3
May 3, Speedy garage – petrol 2
May 4, Postage stamps 5
May 5, Envelopes 1
May 6, Speedy garage – motor expenses 1
May 8, Unique garage – petrol 5
May 8, Night guard – torch batteries 2
May 9, Corner garage – petrol 6
May 11, Postage stamps 5
May 12, F. Adebo – ledger account 9
May 13, H. Fayemi – ledger account 4
May 15, Casual labour 2
May 16, Bends garage – petrol 7
May 17, K. Olusuyi – stationeries 6
May 19, Casual labour 1
May 21, J. Wysocka – ledger account 7
May 25, Postages 6

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 May 27, Night guard – torch batteries 1
May 31, Corner garage – petrol 5

6. The following items are to be entered in a petty cash book. Analysis columns are to be
headed up for travelling expenses, ledger account, postages, motor expenses, stationery and
sundry expenses. The book is to be kept on the imprest system, the amount spent to be
reimbursed on the last day of each month. The opening petty cash float is N500 received on
1st March 2011:
2011 N
Mar. 1, Numan garages – motor expenses 22
Mar. 3, Post office stamps 15
Mar. 5, J. Tonny – ledger account 12
Mar. 6, Train fare 19
Mar. 8, Tree garage – petrol 10
Mar. 9, E. P & Co - stationeries 8
Mar. 10, Bus fare 2
Mar. 11, Post office – stamps 21
Mar. 12, A. Musa – ledger account 16
Mar. 13, Sundry expenses 4
Mar. 15, Scrubbing brushes 2
Mar. 16, E. Momoh – stationeries 18
Mar. 18, Long Lane garage – petrol 11
Mar. 19, L. Adisa – ledger account 24
Mar.20, Train fare 13
Mar. 21, Extra garage – repairs to motor van 28
Mar. 23, Post office – stamps 17
Mar. 24, A & P Agam – stationeries 6
Mar. 28, Sundry expenses 5
Mar. 30, Capital Road garage – petrol 12
Mar. 31, Received reimbursement to bring cash float
To desired level.

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