THE EFFECT OF IMPREST SYSTEM ON CASH MANAGEMENT

THE EFFECT OF IMPREST SYSTEM ON CASH MANAGEMENT

CHAPTER ONE

1.1      Background to the Study

Petty cash imprest system is an accounting system which provides for the replenishing of money spent for petty expenses in the organization. The imprest system provides that a specified amount of money be provided to meet petty expenses in the office at a specified period of time referred to as the float. The expenses so incurred are recorded in the petty cash record. At the end of the specified period an amount is issue to cover the expenses so incurred to bring the balance back to the original amount. The replenishment is credited to the primary cash account, usually a bank account (Dr – Petty Cash a/c, Cr – Bank a/c) and the debits will go to the respective expense accounts, based on the petty cash receipt dockets (Dr – Expense a/c, Cr – Petty Cash a/c). The amounted requested for the replenishment of the imprest is documented in the petty cash dockets and their associated receipts or invoices. The documentation facilitates the records of the expenses to be checked against the float to know what is left as balance; WEB EXPENSE (2016). The research therefore seek to investigate the effect of Imprest system on cash management.

Statement of the Problem

Petty cash imprest system is an accounting system which provides for the replenishing of money spent for petty expenses in the organisation. The imprest system provides that a specified amount of money be provided to meet petty expenses in the office at a specified period of time referred to as the float. The expenses so incurred are recorded in the petty cash record. At the end of the specified period an amount is issue to cover the expenses so incurred to bring the balance back to the original amount. The replenishment is credited to the primary cash account, usually a bank account (Dr – Petty Cash a/c, Cr – Bank a/c) and the debits will go to the respective expense accounts, based on the petty cash receipt dockets (Dr – Expense a/c, Cr – Petty Cash a/c). The amounted requested for the replenishment of the  imprest  is documented in  the petty cash dockets and their associated receipts or invoices. The documentation facilitates the records of the expenses to be checked against the float to know what is left as balance.

The imprest system of cash management has not being given greater consideration in the accounting process of cash management in many organizations due to the nature of the purpose for which the cash is provided for. Just as the name implies proper check and balances are not conducted before the expenses are replenished to continue with the next imprest period. Therefore, many organization suffer hugh losses from the imprest system for sources considered insignificant in the accounting process of the organization.

Much of petty cash funds have being diverted for personal uses and unaccounted for thereby increasing organizational cost. The principal reason is that in may organization petty cash accounting is not included in the main accounting policy framework of the organization as a result when other accounting records are  checked and scrutinized  the petty cash records are not included in  the scheme. Consequently, the neglect of management in overseeing the imprest system has constituted a major reason for the regular mismanagement and fraud in the imprest system of cash management. However with modern technology advocate for the application of the digital process to enhance a policy based implementation of the imprest system has been made. Therefore, the problem confronting the research is to determine the effect of the imprest system on cash management.

1.2      Objectives of the Study

1. To find out the effect of imprest system on cash management.
2. To determine how effective the imprest system is.
3. To find out the challenges of the imprest system.

1.3      Research Questions

i.  What is the effect of imprest system on cash management?

ii. How effective is the imprest system?

iii. What are the challenges of the imprest system?

1.4      Significance of the Study

The study proffers the need for an enlarge accounting policy framework which will cover the presentation of accurate accounting records and cash management for the imprest system. The imprest system of cash management has not being given greater consideration in the accounting process of cash management in many organizations due to the nature of the purpose for which the cash is provided for. Just as the name implies proper check and balances are not conducted before the expenses are replenished to continue with the next imprest period. Therefore many organization suffer hugh losses from the imprest system

1.5      Research Hypothesis

Ho: The effect of imprest system on cash management is not effective

Hi: The effect of imprest system on cash management is effective

1.6      Scope of the Study

The study focuses on the appraisal of The effect of imprest system on cash management

1.7      Limitations of the Study

The study was confronted by some constraints including logistic and geographical factor.

1.8      Definition of Terms

IMPREST SYSTEM DEFINED

Petty cash imprest system is an accounting system which provides for the replenishing of money spent for petty expenses in the organisation. The imprest system provides that a specified amount of money be provided to meet petty expenses in the office at a specified period of time referred to as the float. The expenses so incurred are recorded in the petty cash record. At the end of the specified period an amount is issue to cover the expenses so incurred to bring the balance back to the original amount. The replenishment is credited to the primary cash account, usually a bank account (Dr – Petty Cash a/c, Cr – Bank a/c) and the debits will go to the respective expense accounts.

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