Cash Management Using a Cash Disbursements Journal

Some companies also use it to record purchases of other supplies on account. However, in this chapter we use the purchases journal for purchases of inventory on account, only. It is similar to the sales journal because it has a corresponding subsidiary ledger, the accounts payable subsidiary ledger.

• Management can use this journal to not only see how much cash has been disbursed, it can also track what cash is being used for.
• Let us return to the sales journal, shown in Figure 7.17 that includes information about Baker Co. as well as other companies with whom the company does business.
• The most common accounts found in this journal depend on the company.
• A cash disbursement journal should categorize discounts separately and record a detailed reference for each discount.
• In practice, a disbursement and a cash receipt journal complement each other.
• You must also record cash receipts when you collect money from your customers.

A cash receipt journal has a similar structure and format to the disbursement journal. However, it can be used as a primary or source document that complements other important records like a general journal. Finally, a business can increase or decrease the number of columns as needed. The transaction details should provide useful information to the business. Also, if many cash transactions are made on the same day, these transactions can be written simultaneously for convenience. At the period end two checks are carried out to prove the information has been correctly transferred to the ledgers.

Which Journal?

The cash disbursements journal is a book of prime entry and the entries in the journal are not part of the double entry posting. The reason is that some transactions do not fit in any special journal. However, most firms enter those transactions in the general journal, along with other transactions that do not fit the description of the specific types of transactions contained in the four special journals. The general journal is also necessary for adjusting entries (such as to recognize depreciation, prepaid rent, and supplies that we have consumed) and closing entries.

We enter all cash received into the cash receipts journal, and we enter all cash payments into the cash disbursements journal, sometimes also known as the cash payments journal. Good internal control dictates the best rule is that all cash received by a business should be deposited, and all cash paid out for monies owed by the business should be made by check. Money paid out is recorded in the cash disbursements journal, which is generally kept in numerical order by check number and includes all of the checks recorded in the checkbook register. If we paid this month’s phone bill of $135 with check #4011, we would enter it as shown in Figure 7.26 in the cash disbursements journal. The cash disbursement journal, sometimes referred to as the cash payments journal, is a special journal used to record the payment of cash by a business. The journal is simply a chronological listing of all payments including both cash and checks.

Cash Disbursement Journal Vs Cash Receipt Journal

Suppose in one month, Company ABC purchases a machine from Manufacturer BZY for $5,000 and rents a truck from Rental Trucks for $500. The company would need to credit its cash balances and debit corresponding accounts. And the accounts receivable subsidiary ledger for Baker Co. would also show the payment had been posted (Figure 7.22).

Accounting information systems were paper based until the introduction of the computer, so special journals were widely used. When accountants used a paper system, they had to write the same number in multiple places and thus could make a mistake. Now that most businesses use digital technology, the step of posting to journals is performed by the accounting software. The transactions themselves end up on transaction files rather than in paper journals, but companies still print or make available on the screen something that closely resembles the journals.

Cash Disbursement Journal Used to Update the Subsidiary Ledgers

At the end of the month, we would post the totals from the sales journal to the general ledger (Figure 7.19). Match each of the transactions in the right column with the appropriate journal from the left column. The owner of this website may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.