Accounting Online Program Certification Practice Test

What best describes the imprest system of petty cash?

1. A fixed float is maintained by reimbursing expenditures

2. All petty cash expenditures are recorded monthly

3. Petty cash is expensed only at month-end

4. The imprest amount is adjustable on a quarterly basis

The correct answer is: A fixed float is maintained by reimbursing expenditures

The imprest system of petty cash is characterized by maintaining a fixed amount of cash, referred to as the petty cash float. Under this system, expenditures made from petty cash are periodically reimbursed to restore the float to its original amount. This means that every time cash is taken from the petty cash fund, it is recorded, and once a threshold is met or at regular intervals, a summary of those expenditures is submitted for reimbursement. This process ensures that the petty cash fund remains consistent, allowing for better control and tracking of small expenses. The total amount of cash in the petty cash drawer remains the same, which simplifies accounting and auditing processes. Due to this mechanism, it is essential to document all transactions accurately so that when reimbursement occurs, it aligns with the total spent. This understanding helps contextualize the other choices, as they do not accurately reflect the nature of the imprest system. For instance, while petty cash expenditures may indeed be recorded monthly, the key feature of the imprest system is the maintenance of a set float rather than simply tracking expenses in a monthly timeframe. Similarly, expensing petty cash solely at month-end does not describe the continual reimbursement process central to the imprest method. Lastly, the imprest amount is not typically adjusted