Cash payment journal

Definition and explanation

Cash payment journal or cash disbursement journal is used to record all cash payments made by the business. The examples of major cash payments in a 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.

Format of cash payment journal

Like 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:

cash payment journal

Example

Record the following cash transactions in a cash payment/disbursement journal.

Year: 2016
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.

Solution

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Posting cash payment journal to ledger accounts

The procedure for posting cash payment journal to ledger accounts is described below:

  1. The total of cash column is posted as a credit to the cash account in general ledger.
  2. The total of discount column is posted as a credit to the discount account in the general ledger.
  3. The total of purchases column is posted as debit to the purchases account in the general ledger.
  4. 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.
  5. The total of accounts payable (A/C P.A) column is posted as a debit to the accounts payable account in the general ledger.
  6. 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.
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