How petty cash works: the imprest system step by step

Petty cash is a small amount of notes and coins, kept in a locked tin. It pays for small costs where a bank payment would be more trouble than it is worth: stamps, milk, a window cleaner paid in cash.

The imprest system is a way to run it. Four words describe it.

Imprest amount

The fixed amount the tin holds at the start of each period.

Voucher

A slip filled in for every payment out of the tin.

Top-up

The money put back at the end of the period, to bring the tin up to the imprest amount again.

Petty cashier

The person who looks after the tin and the vouchers.

Every pound that leaves the tin is replaced by a voucher. So at any moment, the cash in the tin plus the vouchers equals the imprest amount.

Petty cash is an asset, just as money in the bank is. The float is started by drawing cash from the bank: debit Petty cash, credit Bank.

One period of petty cash runs like this, from the full tin to the top-up.

1. Start the period with the imprest amount in the tin.
2. Before any cash is handed over, fill in a voucher. It shows a number in sequence, the date, what was bought, the amount, the signature of the person claiming and the signature of the person who authorises the claim.
3. Attach the receipt to the voucher. If cash was handed over before the shopping, write the voucher for what was really spent and put the change back in the tin.
4. Write each voucher in the petty cash book: the total paid out, and the column for its type of expense.
5. At the end of the period, add up the vouchers. That total is what was spent.
6. Count the cash. The cash plus the vouchers must equal the imprest amount.
7. Have someone other than the petty cashier check the vouchers and approve the top-up.
8. Draw the top-up from the bank and put it in the tin. It equals the total of the vouchers.

The top-up is a receipt in the petty cash book. In the main cash book it is a payment out of the bank.

A business sets a limit for one claim. Anything larger is paid through the bank, where it can be approved in the normal way.

Kingsmead Architects has an imprest amount of £120.00 and a limit of £30.00 for one claim. In March four vouchers are paid from the tin.

The vouchers add up to £65.85. So the tin should hold £120.00 less £65.85, which is £54.15.

On 31 March the cash is counted, and it comes to £54.15.

The cash and the vouchers come to £120.00, so nothing is missing. The top-up is £65.85, the amount spent. It brings the tin back up to £120.00.

The top-up is posted as a debit to Petty cash and a credit to Bank, for £65.85. The vouchers are posted as debits to the expense accounts, and as one credit to Petty cash for the total.

No receipt here shows VAT. When one does, the voucher shows the net cost, the VAT and the total. The VAT goes in a column of its own and is posted to the VAT account, not to the expense.

If the cash and the vouchers come to less than the imprest amount, there is a shortage. If they come to more, there is a surplus.

Suppose the count at Kingsmead had found £51.15. Cash of £51.15 plus vouchers of £65.85 is £117.00. That is £3.00 short of £120.00.

A tin comes up short for one of these reasons.

• A payment was made with no voucher
• Too much change was given
• A voucher was written for less than was paid out
• Cash was taken from the tin

A shortage that cannot be explained is reported to the manager. The petty cashier does not make it up from their own pocket, and does not write a voucher to hide it. A surplus is a difference too, and it is reported in the same way.

• Handing over cash before the voucher is written. Nothing leaves the tin without a voucher.
• Topping up by a round sum. The top-up is the total of the vouchers, to the penny.
• Writing the voucher for the cash handed over, not for the amount on the receipt.
• Leaving a note in the tin that someone has borrowed money. A note of a loan is not a voucher.
• Paying a claim over the limit from the tin. It goes through the bank.
• Recording the top-up as an expense. It only moves money from the bank to the tin. The expenses are the vouchers.
• Letting the petty cashier approve the top-up or count the tin alone. A check by the person who holds the tin proves little.

• Before the top-up, the cash plus the vouchers equals the imprest amount.
• After the top-up, the tin holds the imprest amount in cash.
• The top-up is the same figure as the total of the vouchers.
• The voucher numbers run in sequence, with no gap.
• Each voucher has a receipt and two signatures.
• In the petty cash book, the expense columns and the VAT column add up to the total paid out.

A count is best done without warning, by someone other than the petty cashier.