Imprest System of Petty Cash Book:

Definition:
The imprest system is a method of maintaining petty cash in an organization. Under this system, a fixed amount of money is withdrawn from the main cash account and kept separately in a petty cash fund. This fund is used to make small and regular cash payments for minor expenses such as stationery, postage, taxi fares, etc.

Procedure:
The imprest system involves the following steps:

1. Initial Imprest:
- A fixed amount of money is withdrawn from the main cash account and given to the petty cash custodian. This is known as the initial imprest.
- The amount of the initial imprest is determined based on the estimated amount of petty cash expenses for a specific period, usually a month.
- The initial imprest is recorded in the petty cash book as a debit to the petty cash account.

2. Petty Cash Expenses:
- The petty cash custodian uses the petty cash fund to make small cash payments for minor expenses.
- Each time a payment is made, the petty cash custodian prepares a petty cash voucher, which includes details of the expense, amount, and the purpose.
- The petty cash voucher is approved and signed by an authorized person in the organization.

3. Reimbursement:
- At the end of a specific period, usually a month, the petty cash custodian prepares a reconciliation statement to determine the balance of the petty cash fund.
- The petty cash custodian then submits the reconciliation statement along with the petty cash vouchers to the main cashier or accountant for reimbursement.
- The main cashier or accountant reimburses the petty cash custodian with the exact amount spent during the period, based on the petty cash vouchers.

4. Replenishment:
- After reimbursement, the petty cash custodian receives a new fixed amount of money to restore the petty cash fund to its original amount, known as the imprest amount.
- The new amount is recorded as a debit to the petty cash account in the petty cash book.

Advantages:
- Easy to control and monitor petty cash expenses.
- Provides a systematic way of managing small cash payments.
- Reduces the risk of misappropriation of cash.
- Enables proper documentation of petty cash expenditures.

Limitations:
- Requires regular reconciliation and reimbursement processes.
- Relies on accurate record-keeping and proper documentation.
- May not be suitable for organizations with infrequent petty cash transactions.

Conclusion:
The imprest system of petty cash book is an effective method of managing small cash payments for minor expenses in an organization. It ensures proper control, accountability, and documentation of petty cash expenditures. By following the steps of initial imprest, petty cash expenses, reimbursement, and replenishment, organizations can maintain an organized and systematic approach to handling petty cash.