What is ‘advance’
Imprest cash account, which the company uses to pay for small, everyday expenses. Fixed the balance on the account, and it updated regularly to maintain this balance. In addition, advances can turn to a cash advance given to a person with a purpose.
The most well-known Type of advance petty cash account. Cash is used for transactions for which it does not make sense to go through the hassle of writing a check. This is usually a certain amount of cash held on site, which businesses can use to reimburse employees and to pay for small expenses. Cash usually processed by the Keeper, who keeps score and hands out cash to employees in exchange for business receipts.
Imprests are also used for such purposes as the calculation of wages to employees, dividends, travel and employee bonuses. Once expenses are paid, the Fund reimbursed the primary Bank account of the company.
Breaking down the ‘advances’
The benefit of imprests is that it’s harder to use its funds for unauthorized expenditures, because they are not reserved for specific purposes. They usually get paid the same amount of money on a regular basis, which ideally brings the bill close to zero balance, then they are automatically replenished, that a certain number. If there are inconsistencies, it is not difficult to determine what went wrong. This is a simple way how closely the costs of monitoring and fraud protection.
The advance system was designed to track and document cash costs and how they are used, following the General process:
- Petty cash Fund is established with a certain amount of money. It is recorded in the company Ledger.
- Any expenses paid through petty cash must be documented with receipts.
- The Fund is regularly updated with the payment receipt to maintain a fixed balance.
- The Fund is closely monitoring any discrepancies between the expected funds (based on documentation) and real money. Upon detection of discrepancies, they are investigated.
As with the transition to more heavy reliance on electronic transactions, advance system falls out of favor. It can be much easier to just use a credit card company than for use of imprest advance since the success of the system depends on the accuracy of its documentation. In addition, it is important to know and monitor the exact amount paid through imprest on regular basis so that the amount of replenishment is sufficient.