Books of Prime Entry – The Imprest System of Petty Cash (Cambridge IGCSE Accounting 0452)
1. What is the Imprest System? (AO1)
An imprest system is a method of controlling a small, fixed amount of cash kept on hand for routine, low‑value purchases.
The fixed amount is called the petty‑cash fund. It is set up once and is always restored to the same amount – the fixed‑amount principle.
Purpose: provide quick cash, maintain a clear audit trail and limit the amount of cash exposed to loss or theft.
2. The Petty‑Cash Book – Book of Prime Entry & Control Account (AO2)
Records every movement of cash in the imprest system before the information is posted to the Cash Book (Cash Payments Journal).
Acts as a control account: its balance must always equal the original imprest amount.
It is also a subsidiary ledger for “cash on hand”, showing the amount of physical cash remaining in the locked box.
3. How the Imprest System Works – Step‑by‑Step (AO1 & AO2)
Establish the fund – withdraw cash from the bank and place it in a locked petty‑cash box. Journal entry (initial set‑up):
Date
Account
Debit (£)
Credit (£)
dd mmm yyyy
Petty Cash
200
dd mmm yyyy
Cash at Bank
200
After this entry the Petty‑Cash account shows a balance of £200 – the imprest amount.
Make a payment – an employee takes cash, completes a petty‑cash voucher and the expense is recorded in the petty‑cash book. Voucher entry (recorded in the petty‑cash book):
Date
Account
Debit (£)
Credit (£)
dd mmm yyyy
Stationery Expense
45
dd mmm yyyy
Petty Cash
45
The same format is used for every voucher: expense (debit) – Petty Cash (credit).
Reconcile the fund – when cash left in the box is low, add up all vouchers, count the cash on hand and prepare a reconciliation statement. Cash on hand + Total of vouchers = Original imprest amount.
If the equality holds, the fund is ready to be replenished.
Replenish the fund – pay the amount required to bring the fund back to the original balance. Replenishment entry (posted to the Cash Book):
Date
Account
Debit (£)
Credit (£)
dd mmm yyyy
Stationery Expense
45
dd mmm yyyy
Postage Expense
30
dd mmm yyyy
Travel Expense
55
dd mmm yyyy
Miscellaneous Expense
20
dd mmm yyyy
Cash at Bank
150
Notice that the Petty‑Cash account is not altered** – its balance stays at the fixed amount (£200). The only account that changes is Cash at Bank, so the trial balance is unaffected for the Petty‑Cash account.
4. Reconciliation Statement – Example
Original fund = £200. Vouchers collected:
Stationery – £45
Postage – £30
Travel – £55
Miscellaneous – £20
Total vouchers = £150. Cash physically left in the box = £50.
Petty‑Cash Reconciliation
Amount (£)
Original imprest amount
200
Cash on hand
50
+ Total vouchers
150
= 200 (matches original)
Because the totals match, the fund is replenished by £150.
5. Internal Control & Audit Trail (AO3)
Security: cash kept in a locked box; a named custodian is responsible for the fund.
Voucher requirements: date, purpose, amount, signature of the person receiving cash and of the custodian.
Regular reconciliation (daily, weekly or at each replenishment) detects missing cash or unrecorded vouchers early.
The petty‑cash book is the **control account**; its balance must always equal the imprest amount, providing a built‑in check on the trial balance.
6. Advantages & Limitations (AO3)
Advantages
Quick access to cash for small, routine purchases.
Limits the amount of cash on the premises – reduces theft risk.
Provides a systematic, auditable record of all minor expenses.
Simple to administer and fits neatly into the cash‑book system required by the IGCSE syllabus.
Limitations
Unsuitable for large or very frequent cash transactions – would require constant replenishment.
Relies on honest handling of vouchers; falsification can go unnoticed if reconciliation is irregular.
Requires a secure, locked box and a responsible custodian; otherwise the risk of loss increases.
7. Quick Tip – Dealing with Errors
If the reconciliation does not balance, first check that all vouchers are present and correctly added.
Missing or duplicated vouchers affect the petty‑cash book but **do not change the trial balance** because the Petty‑Cash account still shows the fixed amount.
Record a correcting entry in the petty‑cash book (e.g., debit/credit the appropriate expense) and re‑reconcile.
8. Revision Checklist (AO1 & AO2)
What is the fixed amount called? Petty‑Cash fund (e.g., £200)
Which book records the initial establishment of the fund? Cash Book (Cash Payments Journal)
Journal entry to set up the fund? Debit Petty Cash, Credit Cash at Bank
How is a single voucher recorded? Debit the relevant expense, Credit Petty Cash
Entry to replenish the fund? Debit expense accounts, Credit Cash at Bank (total of vouchers)
What happens to the Petty‑Cash account on replenishment? It remains unchanged; the balance stays at the imprest amount.
When should the petty‑cash book be reconciled? Whenever cash is low, at each replenishment, or at regular intervals (e.g., weekly).
Give one advantage and one limitation of the imprest system. Advantage – clear audit trail; Limitation – not suitable for large cash needs.
Suggested diagram: Flowchart of the Imprest System – from fund establishment, through voucher issuance, reconciliation, to replenishment (showing the link to the Cash Book).
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