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:
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 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.