Petty cash imprest system - Posting petty cash to ledgers

Learning Outcomes

After studying this article, you will be able to explain how the petty cash imprest system operates, process petty cash transactions, and accurately post petty cash entries to the relevant ledgers using double-entry bookkeeping. You will gain the skills to reconcile petty cash balances and understand best practices for internal control over small cash expenses.

ACCA Maintaining Financial Records (FA2) Syllabus

For ACCA Maintaining Financial Records (FA2), you are required to understand how petty cash is managed, controlled, and recorded. In particular, your revision should ensure confidence with:

• The principles of the petty cash imprest system, including setting and replenishing the float
• Recording petty cash payments and receipts and reconciling petty cash balances
• Analysis and classification of petty cash expenses for ledger posting
• The double-entry bookkeeping of petty cash transactions and replenishments in the general ledger
• The importance of internal controls concerning petty cash

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which statement best describes the imprest system of petty cash?
   1. Cash is topped up without reference to vouchers
   2. Petty cash is regularly replenished to a fixed amount
   3. Petty cash is only recorded annually
   4. Any cash left at period end is returned to the bank
2. A business paid $15 for taxi fare, $10 for office tea, and $25 for flowers from petty cash. Which is the correct double-entry to post these from the analysis column totals at period end?
   1. Debit Petty cash; Credit Expenses
   2. Debit Expenses; Credit Petty cash
   3. Debit Bank; Credit Petty cash
   4. Debit Bank; Credit Expenses

3. True or false? In the imprest system, petty cash receipts plus vouchers always total the original float.

4. You replenish petty cash with $62 from the bank. What is the correct posting in the ledgers?

Introduction

Petty cash is used by businesses to pay for minor, everyday expenses, such as local travel or office supplies, where payment by cheque or electronic transfer would be inefficient. The imprest system provides structure and control over these small amounts by requiring regular replenishment to an agreed float amount. All petty cash payments must be documented, classified, and ultimately posted to the general ledger from summary analysis columns. Understanding how to process and record these entries is essential both for financial accuracy and for effective internal control.

Key Term: Petty cash
Money held by a business in cash (coins and notes) for paying small-value expenses not suitable for payment by cheque or bank transfer.

Key Term: Imprest system
A petty cash system in which a fixed amount—the imprest or float—is restored at regular intervals, with cash on hand plus voucher totals always equal to this amount.

Operation of the Petty Cash Imprest System

Petty Cash Float and Vouchers

At the start of a period, an agreed amount (the float) is placed in the petty cash box. As expenses are incurred, the cashier exchanges cash for vouchers—documented evidence stating the amount, date, nature of expense, and payee. The cashier records each payment in the petty cash book, splitting them into expense headings such as postage, refreshments, or travel.

At any time, the sum of actual cash remaining plus the value of vouchers should equal the float amount. This provides a control over misuse or theft.

Replenishing the Float

At regular intervals—often monthly—all petty cash payments are totaled by analysis column. The cashier applies for a reimbursement from the bank equal to the value of payments made, bringing the float back to its original amount. The amount withdrawn from the bank is physically added to the petty cash box.

Posting Petty Cash to the Ledgers

At the end of each period:

1. Petty cash payments are analyzed by category (e.g. cleaning, postage, refreshments).
2. The total of each column is posted to the debit side of the relevant expense ledger account. The credit entry is made to the petty cash account.
3. The replenishment amount is recorded as a debit to the petty cash account and a credit to the bank account.

The net result: the bank account is reduced by the amount of total petty cash expenses, and each expense account is updated, with the petty cash account itself returning to the opening float value.

Key Term: Petty cash book
An analyzed record of petty cash receipts and payments, with columns for dates, particulars, and expense categories, which is used as a book of prime entry.

Key Term: Petty cash account
The ledger account, within the general ledger, used to record all petty cash movements and balances within the accounting system.

Analyzing and Recording Petty Cash Payments

Each payment made from petty cash must be allocated to the correct expense category—this is called analysis. Typical petty cash columns include travel, postage, stationery, and sundry expenses.

At period end, the totals of each analysis column are posted to the ledger, not each individual payment. This summarizing avoids excessive detail in the main ledger and smooths the reconciliation process.

Worked Example 1.1

During January, the following expenses were paid from petty cash:

• $8 (postage)
• $6 (office tea)
• $12 (cleaning)
• $10 (local bus fare)

The opening float was $50. At the end of the month, the cashier has $14 left.

Required: How should these transactions be posted to the general ledger?

Answer:

• The total payments are $8 + $6 + $12 + $10 = $36.
• Ledger postings:
  • Debit: Postage account $8
  • Debit: Refreshments (tea) $6
  • Debit: Cleaning $12
  • Debit: Travel expenses $10
  • Credit: Petty cash account $36
• To restore the float, $36 is withdrawn from the bank:
  • Debit: Petty cash account $36
  • Credit: Bank account $36

Worked Example 1.2

At the end of March, a petty cash analysis summary shows:

• Stationery: $24
• Taxi fares: $18
• Sundries: $8

The business replenishes the float by writing a cheque for $50.

Question: What is the correct double-entry posting for the replenishment?

Answer:
The replenishment is posted as:

• Debit: Petty cash account $50
• Credit: Bank account $50 The prior analysis totals would have already been posted to expenses (stationery $24, taxi fares $18, sundries $8).

Internal Control and Reconciliation

Imprest systems provide natural internal controls:

• Only authorized vouchers are accepted for reimbursement.
• Regular spot checks can confirm cash plus vouchers equal the float.
• Unexplained differences indicate possible theft or recording error.

Exam Warning

An easy mistake is to record each petty cash transaction individually in the ledger rather than period totals by category. In exams, always post total analyzed expenses, not line-by-line payments.

Revision Tip

Practice reconstructing a petty cash summary and ledger postings from a list of cash payments and receipts. Speed and classification accuracy are important for the exam.

Summary

The petty cash imprest system enables businesses to manage minor cash payments with tight control. By restricting the float to a set amount, requiring vouchers for all expenditures, and regularly replenishing the float with matching bank withdrawals, financial accuracy and internal accountability are maintained. Correct posting from the analyzed petty cash book ensures each expense category and the petty cash and bank accounts are properly updated in the general ledger.

Key Point Checklist

This article has covered the following key knowledge points:

• Describe the petty cash imprest system, including the handling of floats and vouchers
• Explain the purpose and layout of the petty cash book and its use as a book of prime entry
• Record and analyze petty cash payments using appropriate expense categories
• Post summarized petty cash expenses to the general ledger accurately
• Replenish the petty cash float and show correct double-entry involving the bank account
• Identify and explain internal control checks associated with petty cash
• Apply these principles to practical exam-style questions

Key Terms and Concepts

• Petty cash
• Imprest system
• Petty cash book
• Petty cash account