Journal Entry for Imprest Petty Cash Fund

Imprest petty cash is the system that company keeps the cash balance on the petty cash account and the transaction will not impact its account again.

Petty cash is the cash on hand that company puts in the safe box for small expenses that require immediate payment. Management will set the float balance which depends on the frequency of small expenses. It should not be too low as it will increase the number of time that require replenishing. Setting too high petty cash will increase the risk as the cash will have less control compare to cash at bank. It is the nature of petty which allows for easy access. The petty cash is usually replenished every month.

The petty cash is usually kept with the cashier or admin which depends on the size of company. Some companies even keep with accountants due to the small amount which has little to no risk. The responsible person will allow to use the petty cash based on company policy and attached to the proper document. It may require another person to approve the transaction before releasing cash.

During the month, the petty cash will be used to pay for small expenses. The cashier will not down the cash payment and attach documents such as invoices. There is no transaction record in the accounting system. At the end of the month, the cashier will summarize those expenses and prepare petty cash replenishment. It will increase the petty cash balance to the floating balance again.

Journal Entry for Imprest Petty Cash Fund

First, the company has to set the petty cash floating balance. They simply increase petty cash balance and deduct cash at the bank.

The journal entry is debiting petty cash and credit cash at bank or cash on hand.

The transaction will move the cash balance from bank to the petty cash which will use for the small expense.

During the month, the cashier will use the petty cash to settle the small expense. They will not make any journal entries during this time. They only do not down the expense and attach it with the invoice.

At the month-end, the cashier will summarize all expenses during the month and request the petty cash replenish.

After review and approval, the cash will transfer from bank to replenish the petty cash balance. They will record decreased cash in bank balance and increase expenses based on the actual expense.

The journal entry is debiting expense and credit cash at bank or cash on hand.

The transaction will record cash replenish from bank and increase expenses on the income statement. The expense accounts will depend on the actual transactions. The cash account can be cash at bank or cash on hand, it depends on the source of cash.

Journal Entry for Imprest Petty Cash Fund Example

ABC is a real estate consultant. Management has set the petty cash of $ 1,000 and keep with the cashier to settle the small expense. At the month-end, cashier needs to prepare a report to replenish the balance back to $ 1,000. During the month, there is some expenses such as:

• Taxi: $ 120
• Office supplies: $ 100
• Other expenses: $ 150

Cashier has prepared a report to claim back the above balance. Accountants have written a cheque to withdraw cash from to refill the petty cash balance.

Please prepare a journal entry for the imprest petty cash fund.

ABC has set petty cash for some time already, so there is no journal entry to record the petty cash at the beginning of the month.

During the month, petty cash is used for various expenses totaling $ 370. We do not require to make any journal entries during the month.

At the month-end, cashier prepare replenish report and receives cash from bank to refill the petty cash balance. They need to record expenses based on each category and decrease the cash in bank balance.

Journal entry is debiting expense $ 370 and credit cash at bank $ 370.

The transaction will increase expenses and decrease cash at bank.

Based on the imprest petty cash system, the recording will not impact the petty cash balance itself.