Petty cash and the imprest system

How imprest works

1. Fix a float, say ₹10,000, and give it to the petty cashier.
2. The cashier pays small expenses and keeps a voucher or bill for each.
3. At the end of the week or month, total the bills. Say ₹7,800 was spent.
4. Refill exactly ₹7,800, so the float is back to ₹10,000.

At any time, cash in hand + bills = ₹10,000. Any gap means a missing bill or a loss.

Entries

Setting up the float (F4 Contra)

Petty Cash A/c                 Dr   10,000
    To Bank A/c                                   10,000

Recording the spends (F5 from Petty Cash)

Tea & Refreshment A/c          Dr    1,200
Courier Charges A/c            Dr    2,600
Stationery A/c                 Dr    4,000
    To Petty Cash A/c                               7,800

Refill (F4 Contra)

Petty Cash A/c                 Dr    7,800
    To Bank A/c                                    7,800

Rules to keep in mind

• Cash expense to one person above ₹10,000 in a day is not deductible (old 40A(3)). Pay bigger amounts by bank.
• Petty cash must never go below zero. A negative cash balance is flagged by the AI Audit.