An imprest system is a system using loans as control against fraud and theft. The most common imprest system known is the petty cash system.
Petty cash imprest system
The Petty Cash Imprest System works on the basis that you only replenish what you have spent. So if you start the month with €100 in your petty cash float and spend €90 of that cash in the month, an amount of €90 will be then placed in your petty cash float to bring the balance of your petty cash float back to €100. The most common imprest system known is the petty cash system.
Why use the imprest system
In this example the maximum amount of petty cash that can be issued (spent) is €100. You can only spend what you have and you are only replenished with what you spend in this case €90.
In a non imprest system where a fixed amount is issued every month e.g. €100 every time cash is required, there is no incentive to ensure all money issued has been documented because when money is all spent a cheque for a fixed amount is issued. It is much more difficult to reconcile a non imprest system as you never know how much exactly should be in the float.
In an imprest system the amount requested is documented. The documentation being the petty cash dockets and their associated receipts or invoices. So at all times you can check how much should be left in the petty cash float by deducting the amount spent from the opening petty cash float.
How petty cash imprest system works
The imprest system ensures that you must document how the petty cash is spent. In a petty cash system, petty cash dockets are written for each amount issued. So when all of these dockets are totalled at the end of the month and deducted from the opening petty cash float, the calculated value must agree with what is left in the petty cash float. Under the imprest system, only that which is recorded as spent is replenished. Any shortfalls may have to be replenished by the guardian, usually a bookkeeper, of the petty cash float from their own personal resources.
Tuesday, March 20, 2007
Saturday, March 3, 2007
Why Not Just Print More Money?
"Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability."
Inflation is caused by a combination of four factors:
Factor 1 -> The supply of money goes up.
Factor 2 -> The supply of other goods goes down.
Factor 3 -> Demand for money goes down.
Factor 4 - >Demand for other goods goes up.
Inflation result from decrease in Aggregate Supply (Total value of goods and services produced in country). When supply gets decrease, cost gets increased.
Aggregate Supply gets decrease becuase of increase in production cost (due to increase in cost of wages, raw materials etc).
This scenario where Supply is less i.e Demand is more than Potential Output (K), which is
nothing but Cost Push Inflation.
Where Inflation cuased due to increased in Aggreagate Demand known as Demand Pull Inflation.
Many people ask question like "Why Not Just Print More Money? " to avoid inflation and to get more wealth.
Consider the example here to answer above question.
Consider the case of the United States. Let’s suppose the United States decides to increase the money supply by mailing every man, woman, and child an envelope full of money. What would people do with that money? Some of that money will be saved, some might go toward paying off debt like mortgages and credit cards, but most of it will be spent. I know the first thing I’d do is go down to Walmart and buy an Xbox or PlayStation 2 .
I’m not going to be the only one who runs out to buy an Xbox. This presents a problem for Walmart. Do they keep their prices the same and not have enough Xboxes to sell to everyone who wants one, or do they raise their prices? The obvious decision would be to raise their prices. If Walmart (along with everyone else) decides to raise their prices right away, we’d have massive inflation, and our money is now devalued.
Since we’re trying to argue this won’t happen, we’ll suppose that Walmart and the other retailers don’t increase the price of Xboxes. For the price of Xboxes to hold steady, the supply of Xboxes will have to meet this added demand. If there are shortages, certainly the price will rise, as consumers who are denied an Xbox will offer to pay a price well in excess of what Walmart was formerly charging.
For the retail price of the Xbox not to rise, we will need the producer of the Xbox, Microsoft, to increase production to satisfy this increased demand. Certainly this will not be technically possible in some industries, as there are capacity constraints like machine and wages. Same time wages rate will increase, for more production more labour and over time also needed which increase production cost.
We’ve seen why an increase in the supply of money causes prices to rise. If the supply of goods increased enough, factor 1 and 2 (mentioned above) could balance each other out and we could avoid inflation.
Suppliers would produce more goods if wage rates and the price of their inputs wouldn’t increase. However, we’ve seen they will increase. In fact, it’s likely that they’ll increase to such a level where it will be optimal for the firm to produce the amount they would have if the money supply had not increased.
This may again cuase inflation here..
Inflation is caused by a combination of four factors:
Factor 1 -> The supply of money goes up.
Factor 2 -> The supply of other goods goes down.
Factor 3 -> Demand for money goes down.
Factor 4 - >Demand for other goods goes up.
Inflation result from decrease in Aggregate Supply (Total value of goods and services produced in country). When supply gets decrease, cost gets increased.
Aggregate Supply gets decrease becuase of increase in production cost (due to increase in cost of wages, raw materials etc).
This scenario where Supply is less i.e Demand is more than Potential Output (K), which is
nothing but Cost Push Inflation.
Where Inflation cuased due to increased in Aggreagate Demand known as Demand Pull Inflation.
Many people ask question like "Why Not Just Print More Money? " to avoid inflation and to get more wealth.
Consider the example here to answer above question.
Consider the case of the United States. Let’s suppose the United States decides to increase the money supply by mailing every man, woman, and child an envelope full of money. What would people do with that money? Some of that money will be saved, some might go toward paying off debt like mortgages and credit cards, but most of it will be spent. I know the first thing I’d do is go down to Walmart and buy an Xbox or PlayStation 2 .
I’m not going to be the only one who runs out to buy an Xbox. This presents a problem for Walmart. Do they keep their prices the same and not have enough Xboxes to sell to everyone who wants one, or do they raise their prices? The obvious decision would be to raise their prices. If Walmart (along with everyone else) decides to raise their prices right away, we’d have massive inflation, and our money is now devalued.
Since we’re trying to argue this won’t happen, we’ll suppose that Walmart and the other retailers don’t increase the price of Xboxes. For the price of Xboxes to hold steady, the supply of Xboxes will have to meet this added demand. If there are shortages, certainly the price will rise, as consumers who are denied an Xbox will offer to pay a price well in excess of what Walmart was formerly charging.
For the retail price of the Xbox not to rise, we will need the producer of the Xbox, Microsoft, to increase production to satisfy this increased demand. Certainly this will not be technically possible in some industries, as there are capacity constraints like machine and wages. Same time wages rate will increase, for more production more labour and over time also needed which increase production cost.
We’ve seen why an increase in the supply of money causes prices to rise. If the supply of goods increased enough, factor 1 and 2 (mentioned above) could balance each other out and we could avoid inflation.
Suppliers would produce more goods if wage rates and the price of their inputs wouldn’t increase. However, we’ve seen they will increase. In fact, it’s likely that they’ll increase to such a level where it will be optimal for the firm to produce the amount they would have if the money supply had not increased.
This may again cuase inflation here..
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