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. The journal 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. Information in the journal comes from source documents such as check stubs, cash payment vouchers etc, and includes the following::
- Transaction date – the date the cash is received.
- Transaction reference – an internal reference for the transaction.
- Description – a description of the transaction indicating the account to be credited.
- Ledger folio – a reference to the subsidiary or general ledger.
- Amount – the total cash receipt amount.
- Analysis columns – an analysis of the cash payment into types such as accounts payable, cash purchases, taxes etc, other etc.
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.
It is important to understand that if any cash is paid, even if it relates only to a part of a larger transaction, then the entire transaction is entered into the cash disbursements journal.
Cash Disbursement Journal Example
The use of the cash disbursement journal is a three step process.
- Information is recorded in the cash disbursement journal from the appropriate source documents such as check book stubs, bank statements, and cash purchase invoices.
- The cash disbursements journal line items are used to update the subsidiary ledgers, such as the accounts payable ledger.
- 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 payments are to suppliers for credit purchases, and amounts paid for cash purchases.
Each line represents the information from a cash payment.
2. Cash Disbursement Journal Used to Update the Subsidiary Ledgers
On a regular (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, 550 is posted to the ledger account of supplier A, and 350 to supplier C. When posting to the accounts payable ledger, a reference to the relevant page of the 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 1,050, and in this particular case represents payments to suppliers for credit purchases of 900 and cash purchases of 150. The double entry bookkeeping journal entry would be as follows:
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 900 | |
| Cash purchases | 150 | |
| Cash | 1,050 | |
| Total | 1,050 | 1,050 |
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 to the cash account represents cash paid to suppliers for the period, which decreases the asset of cash.
Payments Journal and Discounts Received
When recording cash payments to suppliers it is common for the cash disbursement journal to include a discounts received column. By using a discounts received column, the payments journal records 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, suppose a business pays a supplier cash of 380 in respect of a purchase invoice of 400 less 5% cash discount. The line item posting to the accounts payable ledger would be for 400 to clear the supplier account. Finally 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.
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 400 | |
| Discounts allowed | 20 | |
| Cash | 380 | |
| Total | 400 | 400 |
Dispersement Journal Proof of Postings
At the period end two checks are carried out to prove the information has been correctly transferred to the ledgers.
- 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.
- The general ledger should be in balance, the total debits in the ledger should be equal to the total credits.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.