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Imprest Accounts

Moneyzine Editor
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Moneyzine Editor
2 mins
January 19th, 2024
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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As money is withdrawn from the account, it is replenished to the pre-established funding level.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The reliability of the system depends on detailed knowledge of the amounts to be withdrawn.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
The financial accounting term current assets is generally defined as cash and other assets that can be converted into cash within one year or one operating cycle, whichever is longer. Current assets are a subcategory of assets, which appear on a company's balance sheet.
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Cash
As it applies to the accounting discipline, cash includes paper money, coins, checks, money orders, and money on deposit with banks. In general, an item is classified as cash if a bank will accept it for deposit.
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Electronic Funds Transfer
The term electronic funds transfer, or EFT, is used to describe a transaction that uses an electronic terminal, telephone, or computerized system to instruct or authorize a financial institution to transfer money into, or out from, an account.
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The term travel advance is used to describe a sum of money paid to an employee prior to business-related travel. An advance would cover reimbursable expenses such as meals, transportation, lodging, and incidental items. Companies can account for this cost as a prepaid expense or as accounts payable.
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Lockbox Account
The term lockbox account refers to a service offered by commercial banks that allows for the efficient collection of money from customers. The lockbox process starts with payments mailed by customers to a post office box owned by the company. The bank collects payments from the post office box and deposits the money directly into the company's account.
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Cash Over and Short
The term cash over and short refers to an expense account that is used to report overages and shortages to an imprest account such as petty cash. The cash over and short account is used to record the difference between the expected cash balance and the actual cash balance in the imprest account.
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Bank Overdraft
The term bank overdraft refers to a withdrawal of money that is greater than the available balance in an account. Banks can provide overdraft protection, which is a service that allows a withdrawal to occur even though there are insufficient funds in the account.
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The term special funds refers to those assets set aside by companies for a specific purpose, and unavailable for ordinary business operations. Special funds include cash set aside to meet a specific financial obligation in the near term, as well as those that might appear in the long-term investment section of the balance sheet.
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