Cash payment or Cash disbursement journal
What is Cash Payment journal? – Definition
Cash payment journal or cash disbursement journal is used to record all cash payments made by the business.
The special journal used to record cash disbursements made by check is called a cash payment journal.
The examples of major cash payments in business are:
- payments to creditors
- cash purchases of merchandise, supplies, equipment or any other asset.
- cash payments for expenses such as salaries, rent, insurance and taxes etc.
- cash refunds to customers for return of merchandise sold for cash.
- personal drawings of the proprietor.
The cash payments journal is used to record the cash disbursements made by check, including payments on account, payments for cash merchandise purchase, payments for various expenses, and other loan payments.
A typical cash payments journal is shown in the below example. This journal has a Date column, a Check Number column, a Payee column, and at least two credit columns, one for cash and one for purchase discounts. In the journal shown in the below example, the other credit column is for Other Accounts. If necessary, other specific account columns could be added if they were used routinely. The debit columns will include at least an Accounts Payable column, a Purchases column, and an Other Accounts column.
Again, other specific account columns could be added if needed. The main source of entries for this journal are check stubs and payment requests.
To demonstrate how entries are recorded in the cash payments journal, we will assume that the Fortune Retail Store made the following cash payments during the month of June:
- June 1: Payment f store lease, $1,500.
- June 1: Paid Ricco’s Pizza (account no. 12) for $76 invoice dated May 17. No discount taken.
- June 2: Cash purchase of $1,250.
- June 3: Paid to Super Cola (account no. 5) $748.84 for invoice dated May 21. No purchase discount taken.
- June 9: Purchase of equipment for $10,000 with 20% down payment.
- June 10: Paid to Super Cola $1,660 for invoice dated June I.
- June 15: Paid manager’s salary, $2,200, for first half of June.
- June 16: Paid $980 to Jones Farm for invoice dated June 6. Discount taken.
- June 25: Cash purchase of $1,400.
- June 30: Paid $1,294.60 to Mrs. Smith’s Bakeries for invoice dated June 18. No discount allowed.
- June 30: Loan payment of $120, of which $90 is interest.
The entries in the cash payments journal are recorded and posted in a similar manner to those in the cash receipts journal. Thus, the entries are entered sequentially into the cash payments journal as they occur. The cash payments journal is also posted in two stages. Entries to the Accounts Payable account should be posted daily to the subsidiary accounts payable ledger.
At the end of the month, all amount columns are summed. All the totals, except those in the other columns, are posted to the appropriate general ledger accounts. The accounts in the other columns must be posted individually. They can be posted daily, monthly, or at other convenient intervals. Because the basic posting procedures are the same as those for the other journals, the actual postings are not shown in the exhibit.
Format of cash payment journal or cash disbursement journal
Like a cash receipt journal, a variety of formats is used for cash payment journal depending on the needs of individual business organizations. A simple format is given below:
Record the following cash transactions in a cash payment/disbursement journal.
May. 01: Paid rent for the month $900.
May: 02: Paid $680 cash to S & Co. and received a cash discount of $20.
May: 11: Paid to K & Co. $1,880 cash and received discount of $120
May: 14: Paid bi-weekly salaries $550.
May: 21: Paid Sam corporation $1,550 cash in settlement of $1,600.
May: 27: Purchased merchandise for cash $780.
May: 30: Paid to K & Co. $765 in settlement of $780.
May: 31: Purchased merchandise for cash $1,000.
Posting cash payment journal to ledger accounts
The procedure for posting cash payment journal to ledger accounts is described below:
- The total of cash column is posted as a credit to the cash account in the general ledger.
- The total of discount column is posted as a credit to the discount account in the general ledger.
- The total of purchases column is posted as debit to the purchases account in the general ledger.
- The account payable column (A/C P.A) column represents the amounts paid to creditors, these amounts are posted to the individual creditor’s accounts in accounts payable subsidiary ledger.
- The total of accounts payable (A/C P.A) column is posted as a debit to the accounts payable account in the general ledger.
- The amounts in the sundries column are separately posted to the appropriate accounts in the general ledger. The total of the sundries column is not posted.