1. Purpose of Petty Cash
A business cannot write a formal check or set up an electronic wire transfer to pay for tiny, everyday expenses like office milk, stamps, or emergency cleaning supplies. Instead, it keeps a small pool of physical cash on hand, known as Petty Cash, managed through a strict system called the Imprest System.
2. The Mechanics of the Imprest System
  • The Imprest Float: The business sets a fixed baseline amount of cash for the petty cash drawer (e.g., $500).
  • The Voucher Loop: Every time an employee spends petty cash, they must leave a signed voucher backed by an store receipt in the drawer.
  • Reimbursement: At the end of the month, the petty cashier counts the remaining cash and adds up the vouchers. The manager then writes a check for the exact total of the vouchers, bringing the cash in the drawer back up to the original baseline float.

       IMPREST SYSTEM REIMBURSEMENT LOOP
   +---------------------------------------+

   | Fixed Starting Cash Float:    $500    |
   +---------------------------------------+
        |
        v (Expenses Occur During Month)
   +---------------------------------------+

   | Remaining Cash in Drawer:     $120    |
   | Total of Vouchers / Receipts: $380    |
   +---------------------------------------+
        |
        v (Reimbursement Step)
   +---------------------------------------+

   | Write Check for Vouchers:     $380    | --> Restores Float to $500
   +---------------------------------------+

3. Analysis Columns in a Petty Cash Book
To save time, a Petty Cash Book uses columns to group small expenses by category (e.g., Office Stationery, Motor Expenses, Cleaning Supplies) before posting monthly totals to the General Ledger.
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