Cash Disbursement Journal

How does your business process payments? More likely than not, your business uses cash on some level. If your business has cash expenses, then you need to keep a cash disbursement journal to process and record these expenses.

Having a journal and recording entries for transactions should come as second nature to business owners. However, it gets difficult to keep up with all the potential journal entry types. Keep reading to learn more about cash receipts and cash disbursements and see a cash disbursement journal example to get a better idea of what one is.

What is Cash Disbursement Journal?

A cash disbursement journal, also known as a cash payments journal, is a journal businesses use to record cash payments. This journal is basically a chronological list of all the payments made by a business, including cash and checks. The journal helps to save time, prevent your general ledger from getting cluttered with too many details or information, and to make it easier to segregate duties between bookkeepers. Some businesses combine their cash disbursement journal with a cash receipts journal. The combination of these two journals is called a “Cash Book.”

Businesses use the information from the cash disbursement journal to create postings in the subsidiary ledgers. The information is also used to add to the relevant general ledger accounts as needed. One thing to keep in mind about a cash disbursements journal is that these journals are a book of prime entries. The entries from your journal aren’t considered part of double-entry bookkeeping.

If you were to set the process up by hand, you might find it easier to use special journals to record normal transactions to expedite the process. This special journal is sure to be shorter than recording a new journal entry for every single transaction at the end of the financial period, be it a day, week, or month. This helps to prevent the general ledger from getting too cluttered with information.

Knowing how to calculate cash disbursements and keeping a journal is a great idea when you only have a few repetitive transactions, such as whenever you buy or sell something on a consistent basis. While these journals are typically used for manual-based bookkeeping systems, there are two important reasons you should know how they work and how to use them;

1. This form of the journal could be presented in a similar format to reports you want to be running within even automated accounting systems.
2. It’s a good idea to know how different accounting systems work. This knowledge shows you the similarities and differences between different systems to better understand the one you use. Having broad knowledge improves your specialized knowledge.

Information Listed in the Cash Disbursement Journal

The cash disbursement journal outlines records for all cash outflows for a business. The journal includes entries on everything that would reduce the amount of cash a business has. That means that these entries are credits to cash, reducing cash. Some of the examples of transactions recorded in these journals are;

• Buying assets
• Paying expenses
• Sending payments to creditors
• Drawing money
• GST paid
• Loan repayments

The format for a cash disbursement journal is similar to that of the cash receipts journal. As mentioned, some people combine the two together to create Cash Books. The journal is separated into the following columns;

• Date – the date of a transaction
• Details – the name or account of the parties involved, such as creditor’s names
• Check number – this number is issued by a business in sequential order
• Bank – how much cash was pad, which is then allocated to the column on the right
• Creditor control – this column on the right represents the total amount deducted from the creditor account
• Stock control – this column on the right reflects the costs of stocks purchased using cash
• Special columns – these special columns vary according to the nature of the business. For example, it could include things such as advertising costs, drawings, wages, and discounts received.
• GST – GST refers to the goods and services taxes paid with a transaction
• Other columns – other columns that are needed but don’t fit into a specific category

When the financial period is over, the bookkeeper adds a Total Payment row to the journal. This row highlights the total amount for each column in the journal. Accounts use the data from the journal to make posts in General Ledger and any subsidiary ledgers as needed.

Cash Disbursement Journal and Discounts Received

It’s common practice to include an extra column for discounts received in your cash disbursement journal as you record cash payments to your suppliers. Including separate discounts received column in the journal means that you can use your disbursement journal to keep a record of invoiced amounts, any discounts you receive, and the overall cash payment. When used this way, any line item postings to the accounts payable ledger are for the full amount in the invoice. In cases like this, the line item postings to the accounts payable ledger are for the total invoiced amount. Only the total amount for discounts received is inserted into the general ledger.

Let’s say, for example, that a business pays its supplier $380 in cash for a purchase invoice of $400 with a 5% cash discount. The line item for the accounts payable would still be the $400 for the supplier account. The discounts received column would include the $20, assuming that there is just one item in the accounting period. This discount is posted to the discounts received account on the general ledger at the end of the accounting period.

Cash Disbursement Journal Example

To dive into a more comprehensive cash disbursement journal example and how to use these journals, let’s look at a retailer. This retailer has several payments across accounts payable, inventory, and paying worker salaries. Manufacturers, on the other hand, have entries for their raw materials and the costs of producing goods with those materials. The journal for the companies shows that the accounts are credited and debited for all transactions, as well as detailing how the overall cash balance is affected by these transactions.

As for how to calculate cash disbursements and use them effectively, management could use the journal to see not just the disbursement of cash but also track how a company uses cash. Understanding where the money goes is just as important as understanding how much money you have. Management could read through the cash disbursement journal and see how much cash is going towards inventory compared to how much cash goes towards paying other bills.

Given that the cash disbursement journal includes information such as check numbers of checks issued during a period, management can look through the journal to find missing or miswritten checks. It’s for this reason that cash disbursement journals are commonly called a “check register” by accounting software programs.

Final Thoughts

Knowing how to calculate cash disbursements helps businesses track where cash is spent. Having this information to hand helps in several ways, such as finding bad checks, tracking costs and income, and having a better overall picture of the financial situation of a company.