Cash Management Using a Cash Disbursements Journal
The cash disbursements journal, also known as the cash payments journal, is an accounting form used to record all cash outflows, including purchases made in cash or cash disbursements. Some examples of outflows are accounts payable, materials payable, and operating expenses, among other cash purchases. Examples of other cash disbursements include deposits to the petty cash fund.
Your bookkeeper or accountant will record all these transactions in the cash disbursements journal before posting them to the general ledger, accounts payable ledger, or other books. This is usually done on a monthly basis. In some businesses, the cash disbursement journal is combined with the cash receipts journal and is referred to as the cash book.
The cash disbursements journal is an important tool in cash management—business owners can use this to see how much cash has been disbursed and where it went, calculating the percentage that went to inventory versus what went to paying other bills. The cash disbursement journal includes the check numbers of checks that were written, which is why many accounting software packages refer to the journal as a check register. These packages either have preset forms for the cash disbursements journal, or easily customizable forms to accommodate your needs.
Setting Up the Cash Disbursements Journal
Columns are set up for each transaction as follows:
- Check number
- Cash credit
- Other credit
- Account debited
- Accounts payable debit
- Other debit
The cash payment type columns may be more specific to the nature of the business. For instance, some businesses may only need one column to record the cash amount whereas others need additional columns for accounts payable, discounts received cash purchases, etc. There should always be an "other" column to record amounts which do not fit into any of the main categories.
Updating Other Ledgers
Regularly, sometimes daily, the line items in the cash disbursement journal are used to update the subsidiary ledgers—those designed to record specific types of accounting transactions. If most cash payments are to suppliers for credit purchases, then the subsidiary ledger updated is the accounts payable ledger.
The general ledger accounts are updated monthly using the totals from the cash disbursements journal. If the business is using subsidiary control accounts to support the general ledger accounts, the postings are part of the double entry bookkeeping system.
The cash disbursement journal will include a "discounts received" column if there are cash payments to suppliers that may enjoy a discount, perhaps for early payment. Thus, the invoice amount is recorded, along with the discount received and the cash payment. Only the discounts receive column total is posted to the general ledger.
Proofs of Posting
Bookkeeping and accounting can make use of two procedures at the end of an accounting period to prove that the information on the cash disbursement journal has been correctly transferred to the subsidiary ledgers.
- The total of all the subsidiary ledger balances (if most payments are to suppliers, we are referring to 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—that is to say, the total debits in the general ledger should be equal to the total credits.