Cash Disbursement 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, and is used to save time, avoid cluttering the general ledger with too much detail, and to allow for segregation of duties. In some businesses, the cash disbursements journal is combined with the cash receipts journal and is referred to as the cash book.

The information recorded in the cash disbursement journal is used to make postings to the subsidiary ledgers and to relevant accounts in the general ledger. The cash disbursements journal is a book of prime entry and the entries in the journal are not part of the double entry posting.

Information Listed in the Cash Disbursement Journal

The cash disbursement journal format is usually multi-column. The information in the journal is taken from source documents such as check stubs, cash payment vouchers etc, and typically includes the following:

  • Transaction date
  • Description
  • Check number
  • Amount
  • Cash payment type columns (accounts payable, cash purchases, taxes etc.)
  • Other

The cash payment type columns will depend on the nature of business. Some businesses simply have one column to record the cash amount whereas others need additional columns for accounts payable, discounts received, cash purchases etc. The cash disbursement journal should always have an ‘other’ column to record amounts which do not fit into any of the main categories.

Cash Disbursement Journal Example

The use of the cash disbursement journal is a three step process.

  1. Information is recorded in the cash disbursement journal from the appropriate source documents.
  2. The cash disbursements journal line items are used to update the subsidiary ledgers, such as the accounts payable ledger.
  3. The cash disbursements journal column totals are used to update the general ledger

It should be noted that, if the business maintains subsidiary ledger control accounts in the general ledger, then only step 3 above is part of the double entry bookkeeping posting.

1. Cash Disbursement Journal is Updated from Source Documents

Each cash payment is recorded as a line item in the cash disbursement journal as shown in the example below. In this example, it is assumed that all payments are payments to suppliers for credit purchases, some information has been omitted to simplify the example. In practice, each line item would include the information listed above.

Cash disbursement journal
Date Description Check no. Amount
06/05 ABC 1356 200
06/18 EDF 1489 300
06/30 XYZ 6795 250
Total 750

Each line represents the information from a cash payment.

2. Cash Disbursement Journal Used to Update the Subsidiary Ledgers

On a regular (usually daily) basis, the line items in the cash disbursement journal are used to update the subsidiary ledgers. Normally most cash payments are to suppliers for credit purchases and the subsidiary ledger updated is the accounts payable ledger. In the above example, 200 is posted to the ledger account of supplier ABC, 300 to supplier EDF, and 250 to supplier XYZ. When posting to the accounts payable ledger, a reference to the relevant page of the cash disbursement journal would be included.

As the business maintains control accounts in the general ledger, the entries in the subsidiary ledger itself (in this case the accounts payable ledger) are not part of the double entry bookkeeping, it is simply a record of the amounts paid to each supplier.

3. Cash Disbursement Journal Totals Used to Update the General Ledger

At the end of each accounting period (usually monthly), the cash disbursement journal column totals are used to update the general ledger accounts. As the business is using subsidiary ledger control accounts in the general ledger, the postings are part of the double entry bookkeeping system.

In the above example, the cash disbursement journal column total for the month is 750, and in this particular case represents payments to suppliers for credit purchases. The double entry bookkeeping cash disbursement journal entry would be as follows:

Cash disbursement journal used to update the general ledger
Account Debit Credit
Accounts payable 750
Cash 750
Total 750 750

In this case the debit entry is to the accounts payable control account in the general ledger, and represents the reduction in the amount outstanding to suppliers. Had the cash disbursement journal recorded other items such cash purchases etc. then the debit would have gone to the appropriate purchases or expense account.

The credit entry to the cash account represents the cash paid to suppliers for the period, which decreases the asset of cash.

Cash Disbursement Journal and Discounts Received

When recording cash payments to suppliers it is quite common for the cash disbursement journal to include a discounts received column. By using a discounts received column, the business can use the cash disbursement journal to record the invoiced amount, the discount received, and the cash payment. In this way, the line item postings to the accounts payable ledger are for the full invoiced amount, and only the discounts received column total is posted to the general ledger.

For example, if a business pays a supplier cash of 380 in respect of a purchase invoice of 400 less 5% cash discount, then the line item posting to the accounts payable ledger would be for 400 to clear the supplier account, and the discounts received column total of 20 (in this case assume there is only one item for the accounting period) is posted to the general ledger discounts received account.

Discounts received column used to update the general ledger
Account Debit Credit
Accounts payable 400
Discounts allowed 20
Cash 380
Total 400 400

Cash Disbursement Journal Proof of Postings

The are two checks which can be made following the posting of the cash disbursement journal at the end of an accounting period to prove that the information has been correctly transferred to the ledgers, as follows:

  1. The total of all the subsidiary ledger balances (in this case the supplier account balances in the accounts payable ledger) should be equal to the balance on the subsidiary ledger control account in the general ledger.
  2. The general ledger should be in balance, that is to say, the total debits in the general ledger should be equal to the total credits.
Cash Disbursement Journal February 8th, 2017Team

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