What Is the Petty Cash Imprest System? A Complete Beginner's Guide
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Why a business needs petty cash
Every business runs into small expenses almost every day. Suppose a shop needs postage stamps to send a letter, pays parking for a delivery driver, buys teh tarik for a meeting with a supplier, or tops up pens and note paper in the office. Each of these amounts is tiny, perhaps only a few ringgit, but they happen constantly and cannot be avoided.
If the business had to write a cheque or make a bank transfer for every small expense, the accounting work would become slow and messy. The main cash book would fill up with hundreds of entries worth RM2 or RM5, making it hard to see the large, important transactions. To solve this, a business sets up a small dedicated fund called petty cash.
Petty cash is a small sum of money kept in the office to pay for minor expenses quickly and easily. It is handled separately from the main cash so that trivial daily spending does not clutter the record of the firm's big money movements.
The imprest principle (a fixed float)
The tidiest version of the petty cash system uses the imprest principle. The word imprest means a fixed amount of money set at the start of each period. This fixed amount is called the float.
The core idea is simple. At the start of a period, the petty cashier is given a fixed float, say RM200. During that period, they pay out various small expenses from the RM200. At the end of the period, the main cashier restores the float to its original amount by reimbursing exactly what was spent.
For example, if during the month the petty cashier spent RM145, then at the end of the month they are given RM145 back so the float returns to RM200. The rule here is that the reimbursement must equal the amount spent exactly, no more and no less. That is why it is called a fixed-float system: at the beginning of every period, the amount on hand is always the same.
The petty cash book and analysis columns
To record all the small expenses, a business uses a petty cash book. This book has one column on the left to record money received, meaning the float and any restoration of the float. On the right there is a total payments column, followed by several analysis columns.
The analysis columns are the most useful feature of this book. Each type of expense is given its own column, for example a postage and stamps column, a travel column, a stationery column, a refreshments column, and a sundries column for expenses that rarely occur. When the cashier pays for something, they record the amount in the total payments column and again in the appropriate analysis column.
At the end of the period, each analysis column is totalled. The total of each column is then transferred to the relevant expense account in the ledger. In this way, one large entry represents many small expenses, keeping the main ledger neat and easy to understand. The sum of all the analysis columns must equal the total payments column, which serves as a handy cross-check.
The role of the petty cashier and vouchers
One employee is appointed as the petty cashier, the person responsible for looking after the petty cash fund and recording all payments. This clear responsibility matters for internal control, because only one person holds the money and can be held accountable for it.
Every time petty cash is paid out, the cashier must prepare or receive a petty cash voucher. A voucher is a supporting document stating the date, the purpose of the expense, and the amount paid. Wherever possible, the original receipt from the shop is attached to the voucher as evidence.
At any point in time, the cash still in the tin plus the total of all vouchers not yet reimbursed must equal the fixed float. For example, if the float is RM200 and vouchers total RM120, then the cash on hand must be RM80. This simple rule lets anyone check the fund at any moment and detect a shortage quickly.
Worked example: a RM200 float spent and restored
Suppose a small business sets a petty cash float of RM200 on 1 May. The petty cashier receives RM200 from the main cashier, and this amount is recorded as money received in the petty cash book.
During May, they make the following payments: postage stamps RM30, teh tarik for a meeting RM25, parking and tolls RM40, and stationery RM50. Each payment is recorded in the total payments column and in its matching analysis column. The overall amount spent is RM30 plus RM25 plus RM40 plus RM50, which is RM145.
At the end of May, the cash left in the tin is RM200 minus RM145, which is RM55. To restore the float, the main cashier gives RM145 to the petty cashier, exactly equal to the amount spent. Now the cash on hand becomes RM55 plus RM145, which is back to RM200. On 1 June, a new period begins again with the full RM200 float. Notice that the total of each analysis column, namely RM30 postage, RM25 refreshments, RM40 travel and RM50 stationery, is transferred to the related expense account in the ledger.
Advantages of the petty cash imprest system
The first advantage is better control over cash. Because the float is a fixed amount and every sen must be supported by a voucher, any shortage is easy to detect. The cashier cannot spend more than the float, so the risk of misuse is reduced.
The second advantage is that the main cash book becomes tidier. All the small expenses are gathered in the petty cash book, and only the reimbursement total enters the main cash book. This saves time and makes it easier for the accountant to review the larger, more important transactions.
The third advantage is the division of duties. A senior employee handles the main cash and cheques, while a more junior employee can handle petty cash. This trains newer staff and at the same time maintains a separation of duties, which is a foundation of good internal control. The analysis-column system also provides expense information by category instantly.
Common mistakes to avoid
The first mistake is reimbursing the wrong amount during restoration. Remember, in an imprest system, what is reimbursed must equal exactly what was spent, so the float returns to its fixed original value. Some students always restore RM200 by mistake, when the correct step is to restore only the amount that was spent.
The second mistake is failing to record an expense in both columns, meaning the total payments column and an analysis column. If one of them is left out, the total of the analysis columns will not match the total payments column, and the book will not balance.
The third mistake is confusing which side is debit and which is credit. In the petty cash book, money received such as the float and the reimbursement is recorded on the debit side, while all payments are recorded on the credit side. The fourth mistake is forgetting to transfer the analysis column totals to the expense accounts in the ledger at the end of the period, causing expenses to be reported incorrectly.
Study tips for mastering this topic
The best way to master the petty cash imprest system is to draw the petty cash book format over and over until you memorise its layout: the money received column on the left, then date and details, the total payments column, and several analysis columns on the right. Every time you answer a question, draw this format first before filling in the numbers.
Always check that cash on hand plus vouchers equals the float. This simple check will catch many calculation errors before they spoil your answer. Also practise totalling each analysis column and make sure their sum equals the total payments column.
Create a few of your own examples using easy numbers, such as a RM100 or RM300 float, and imagine reasonable daily expenses. The more you practise with different situations, the more easily you will recognise the restoration pattern. If you would like closer guidance, we offer online 1-to-1 lessons with experienced teachers. The paid one-hour trial class starts from RM50 an hour; WhatsApp us for the exact rate.