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In today’s Store Management class, we will be learning about Advantages and Disadvantages of Imprest System
Advantages and Disadvantages of Imprest System
While an Imprest System is a type of financial accounting system designed to track and document how cash has been utilized, and basically used by businesses, there are some advantages and disadvantages attached to it.
The most common example of an Imprest System is the petty cash system that accounts for each petty cash transaction to maintain an equilibrium in the fund that equals the total of petty cash receipts and additional cash left in the fund
Advantages of the Imprest System
- Detection of Fraud
The Imprest system eliminates the possibilities of unauthorized spending as the funds are designated for pre-determined purposes. This, in return, makes tracking of expenses and reporting of discrepancies much easier which ultimately aids in the detection and elimination of the possibilities of fraud.
- Reduction in Errors
The cashier reviews the petty cash book at frequent intervals, and if there are any mistakes or errors, they can be easily traced and rectified.
- Regulation of Petty Expenses
Petty expenses are managed with the set limits of the imprest system, making it almost impossible for the petty cashier to spend more than the petty cash available in the account.
- Reduces the Chief Cashier’s Burden
A petty cash book relieves both the cash book and the Chief Cashier from the burden of recording petty and nominal expenses.
- Simple And Quick Method
The method can be quickly used to provide funds for employees’ purchases. It is one of the best methods known for making nominal purchases. Compared to other methods, this is way too quick, simple, accessible, and convenient simultaneously.
- Ease in Reconciliation
The reconciliation of the petty cash book is simple and uncomplicated too.
Now, let’s consider some of the Disadvantages of Imprest System
- Outdated System
Petty cash books are a largely outdated and inefficient system that does not fulfill the needs and expectations of the company’s current requirements. Now there are better alternatives, such as prepaid cards, with the companies specifically designed, keeping in mind today’s needs and requirements.
- Inconvenient for Larger Expenses
One of the major drawbacks of using an Imprest system is that it causes huge inconvenience for larger expenses. The system is highly compatible and convenient for smaller expenses while the opposite for larger expenses.
- Accounting Errors
Since there is no secondary documentation system to track nominal cash expenditures, the chances of accounting errors in the petty cash system cannot be denied.
Not setting the expenditure limits for every nominal transaction can even put an organization at the risk of overspending on purchases.
Without appropriate controls, the company’s petty cash account can be misused by employees, and it will become tough to find out who took out the cash.
In conclusion, the imprest system can cause cash leakage from a business, either through theft of the cash or because the petty cash custodian does not do a proper job of recording disbursements. For these reasons, the imprest system is declining in popularity, with many businesses preferring to use company credit cards for incidental purchases, or have employees pay cash and then apply for reimbursement through the corporate expense reimbursement system.
What is an Imprest System?
Give five advantages of Imprest System
Give five disadvantages of Imprest System
We hope you enjoyed today’s class. In our next class, we will be talking about Methods of Keeping Cash Sales Proceed.
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