Petty Cash on the Imprest System: Controls in Ten Minutes
- Setting it up
- Every payment gets a voucher
- Replenishing the float: a worked example
- The controls that make it work
- Changing the float
- Reducing cash altogether
- Where this fits
The imprest system is the simplest reliable way to run petty cash. You set a fixed amount for the cash box, the float. Every payment from it is supported by a voucher. When the float runs low, you top it up by exactly the amount spent, which is proven by the vouchers. At any moment, the cash in the box plus the vouchers must equal the float. If they do not, you know immediately that something is wrong, and you know by how much.
It takes about ten minutes a week to run and turns petty cash from a common source of small, untraceable losses into one of the easiest balances to check.
Setting it up
- Set the float. Estimate typical small cash spending for two to four weeks and round up. A small office might set ₹10,000.
- Appoint one custodian. One named person holds the box and makes payments. Shared custody makes shortages impossible to trace.
- Set a per-payment limit. Anything above it, for example ₹2,000, goes through the normal bank payment process.
- List what petty cash may be used for: courier charges, small stationery purchases, local conveyance, refreshments for meetings, minor repairs. Everything else needs approval.
- Keep the cash locked, and separate from any personal money.
To create the float, draw a cheque or make a transfer for ₹10,000 and record it:
| Account | Debit | Credit |
|---|---|---|
| Petty cash | ₹10,000 | |
| Bank | ₹10,000 |
Every payment gets a voucher
A petty cash voucher records the date, amount, purpose, the person receiving the cash, their signature and the custodian’s initials. Attach the supplier’s bill or receipt wherever one exists. Number the vouchers in sequence.
No voucher, no payment. The one exception most offices make, an IOU for cash advanced to an employee for a purchase, should be cleared within a day or two with the actual bill and any change.
Replenishing the float: a worked example
At the end of the month, the custodian totals the vouchers and counts the cash.
| Vouchers by category | Amount |
|---|---|
| Stationery | ₹1,200 |
| Courier | ₹950 |
| Refreshments | ₹2,800 |
| Local conveyance | ₹2,400 |
| Minor repairs | ₹1,000 |
| Total vouchers | ₹8,350 |
| Cash counted | ₹1,550 |
| Vouchers plus cash | ₹9,900 |
| Float | ₹10,000 |
| Shortage | ₹100 |
Illustrative figures.
To restore the box to ₹10,000, ₹8,450 is drawn from the bank: the ₹8,350 of vouchers plus the ₹100 shortage.
| Account | Debit | Credit |
|---|---|---|
| Printing and stationery | ₹1,200 | |
| Postage and courier | ₹950 | |
| Staff welfare and refreshments | ₹2,800 | |
| Local conveyance | ₹2,400 | |
| Repairs and maintenance | ₹1,000 | |
| Cash shortage | ₹100 | |
| Bank | ₹8,450 |
The petty cash account in the ledger stays at ₹10,000 throughout. Expenses are recorded in their proper accounts when the float is replenished, and the vouchers are cancelled with a stamp or mark so they cannot be submitted again.
A shortage should be investigated and explained, not just booked. Small, occasional differences usually come from rounding or a missing bill. Regular shortages indicate a control problem.
A surplus, where cash plus vouchers comes to more than the float, is just as much a warning sign. It usually means a receipt was put into the box, change from an advance was returned without the voucher being corrected, or a voucher was written for more than was actually paid. Record a surplus in a separate account, find the cause, and correct the procedure that allowed it.
Keep a simple petty cash book alongside the vouchers, with one line per payment and analysis columns for the main expense categories. It makes the monthly totals quick to prepare and shows at a glance how the float is being used. A per-payment limit well below ₹10,000 also matters for tax: for tax year 2026-27, section 36(4) of the Income-tax Act, 2025 disallows an expense where payments to one person in a day exceed ₹10,000 other than through specified banking or online modes (section 40A(3) of the 1961 Act applied up to FY 2025-26).
The controls that make it work
- Surprise counts. Someone other than the custodian counts cash and vouchers without warning, perhaps once a month. It takes five minutes and deters most misuse.
- Replenish only against vouchers reviewed and approved by a second person.
- Never mix receipts into petty cash. Cash received from customers goes to the bank, not the box. Mixing them breaks the imprest arithmetic.
- Review the pattern. If the float needs topping up weekly, it is either too small or being used for payments that belong in the normal process.
- Replenish at each month-end even if the box is not low, so the month’s expenses are recorded in the right period.
Changing the float
If the float is consistently too large or too small, change it deliberately with an entry. To raise it from ₹10,000 to ₹15,000, transfer ₹5,000 more from the bank to petty cash. Do not let the float change informally by topping up by more or less than the vouchers.
Reducing cash altogether
Many small payments can now be made digitally, which leaves an automatic record. A company card or a prepaid expense card for the office administrator, with receipts uploaded, can replace much of petty cash. Keep a small imprest float for the payments that genuinely need cash, and run it with the same discipline.
Where this fits
- The other cash balance to reconcile monthly: bank reconciliation step by step
- Where the count belongs in the routine: month-end close checklist
- Where unexplained items should not end up: the suspense account
- Setting up expense ledgers: chart of accounts setup