Imprest Accounts

Definition

The term imprest account refers to a bank or cash fund that is dedicated to a specific purpose.  An imprest account will always have the same balance.  Once established by a company, the account will never require a future journal entry.

Explanation

Imprest accounts are typically established by large corporations, and are classified as a current asset since the funding consists of cash.  The most common examples of imprest accounts include those used for employee payroll, dividends, sales commissions, bonuses, travel expenses, and petty cash.

As money is withdrawn from the account, it is replenished to the pre-established funding level.  For example, if a company's biweekly payroll is $2,000,000, this amount will be present in the imprest account when checks, or electronic funds, are transferred to employees.  The account is subsequently replenished from the company's primary bank account prior to the next payroll cycle.

Since the account is dedicated to a specific purpose, and is funded to a pre-determined level, it is more difficult for unauthorized withdrawals to go unnoticed.  Therefore, an imprest account is thought to offer companies some protection against fraud.  It also allows the company to carefully monitor and forecast expenses.

The reliability of the system depends on detailed knowledge of the amounts to be withdrawn.  Ideally, the account balance would be near zero just prior to the next replenishment cycle.  For example, the funds required for employee payroll should be accurately known just prior to the next pay cycle.  Once disbursed, the account balance should be close to zero.

Petty cash accounts are often owned by a custodian that disburses cash to employees in exchange for receipts for business approved expenses.  The custodian is responsible for ensuring the money in the petty cash fund, plus the total of all business related receipts, is equal to the imprest account balance.  When the money in the petty cash fund falls to a certain threshold, the custodian would exchange the receipts for additional cash.

Related Terms

current assets, cash, electronic funds transfer, travel advance, lockbox account, cash over and short, bank overdraft, special funds