A cash disbursement journal is a primary source document that records cash payments of a business. It helps a business keep an eye on its cash outflows.
A cash payment or disbursement journal complements a cash receipt journal where they become part of the cash book.
Let us discuss what is a cash disbursement journal, its format, and the key steps to creating it.
What is Cash Disbursement Journal?
The cash disbursement or cash payment is a special record maintained by a business for its cash payments. It is part of the cash book of a business and compliments the cash receipt journal.
A business uses a cash disbursement journal as a cash payment log. It is a chronological form of recording all cash payments made by the business.
Cash payments do not only include direct payments made through fiat currency. These payments would also include cash payments through checks and electronic funds transfers.
A cash journal is a primary record book. It helps a business in bookkeeping records by separating cash transactions from other types of transactions.
Transactions recorded in a cash payment journal are then carried forward to record in the general ledger. These figures then become part of the financial statements of the business after going through a reconciliation check.
What is Included in a Cash Disbursement Journal?
A cash disbursement journal is a multi-column form that includes several pieces of information. A business can add or delete any number of columns to it depending on the needs.
The cash payment journal records all types of cash transactions including:
- Inventory purchases
- Payments to suppliers and vendors
- Shipping and carriage payments
- Loan payments
- Tax payments
- Wages
The format of a cash disbursement journal can vary by the type and nature of the business. It includes the following key information points:
- Transaction Date – The date when a cash payment is made.
- Transaction Reference – A reference number for recordkeeping purposes.
- Transaction Details – A description of each transaction with important details.
- Ledger folio – a reference to the sub-ledger or main ledger.
- Transaction Amount – The cash amount paid for each transaction.
- Analysis or Notes Column – A descriptive column showing analysis or special notes about each transaction.
- Transaction Type – It classifies each transaction into different categories like payables, taxes, wages, etc.
- Check number or electronic transfer reference number.
A sample format of a cash disbursement journal would like this.
| Date | Transaction Reference | Details | Ledger Folio | Amount | Payee | Account Details | Notes |
| 01-04-xx | 1301 | Printer Toner | OS 17 | $ 150 | Jet Printers | Office Supplies | Office Purchases |
| 02-04-xx | 1302 | Inventory | IP 03 | $ 1,000 | Fine Materials | Raw Material | Added to Inventory |
| 03-04-xx | 1303 | Inventory | IP 07 | $ 500 | Star Co. | Supplies | Supplementary Material |
| 04-04-xx | 1304 | Estimated Tax | ET 04 | $ 1,000 | IRS | Estimated taxes | Advance tax payment |
| 05-04-xx | 1305 | Wages | WP 03 | $ 2,000 | Laborers | Daily wages | Daily wage payments |
The details listed here are for a sample purpose only. In practice, a bookkeeper would more details about each transaction to make it a convenient cash log for the company.
Also, depending on the needs of the business, any number of columns can be added. Many businesses would add a column specifying payments made through cash or checks as well.
How to Create a Cash Disbursement Journal?
The format of a cash payment journal can be customized according to the needs of a business. However, the general process to record cash transactions in the journal will be the same.
STEP 01:
The first step is to evaluate the cash account types needed by your business. You should add relevant columns in the disbursement journal to avoid any clutter.
STEP 02:
As a business makes a cash payment like a loan payment, inventory purchased, or tax payment, it should be recorded with full details.
Each transaction should be recorded with a transaction reference number, date, type, account used, payee name, and so on.
STEP 03:
Each line item should represent different transactions. Also, if many cash transactions are made on the same day, these transactions can be written simultaneously for convenience.
STEP 04:
Each line item gives a reference to the subsidiary ledger account. A business should update each ledger account involved in any cash transaction.
The subsidiary ledger account balances can be taken from the cash disbursement ledger. These accounts should be reconciled regularly to avoid omissions and errors.
STEP 05:
At the end of the accounting period, the final balances from the cash payment journal should be transferred to the general ledger book.
The general ledger accounts are parts of the double-entry bookkeeping. Therefore, each account would carry a contra-account balance as well.
Finally, a business can increase or decrease the number of columns as needed. The transaction details should provide useful information to the business.
Also, a business must update the cash payment journal (daily) to keep a consistent track record of cash transactions.
Special Considerations with a Cash Disbursement Journal
The account balances in a cash disbursement journal may not balance each other as they do in the general ledger. This journal only records cash payments; therefore, transactions made for the same accounts on credit would not show up.
However, when the ending balances are taken to the general ledger accounts, they would show balanced debit and credit sides.
Receiving discounts from vendors and suppliers is a common practice. Often, businesses receive cash discounts for large inventory purchases. A cash disbursement journal should categorize discounts separately and record a detailed reference for each discount.
A cash payment journal is not a mandatory bookkeeping form. Many businesses using automated bookkeeping systems do not create this form separately.
However, it can be used as a primary or source document that complements other important records like a general journal.
Similarly, a business must reconcile for reversal entries. For instance, in the case of returned or damaged inventory a business should record the reversal entry in the cash payment log as well.
Tips to Keep a Consistent Cash Disbursement Journal
A well-maintained cash payment journal can provide a useful recordkeeping source for a business. In turn, it can help create a consistent ledger book for the business.
Here are a few tips to improve your cash payment journal.
- Update your cash journal regularly (usually daily).
- Use this journal in conjunction with other ledgers such as subsidiary ledger, cash receipt ledger, etc.
- Keep a track of your damaged or returned inventory.
- Match your cash journal cycle with your accounting period.
- Match your cash receipt journal, subsidiary ledger accounts, and general ledger accounts regularly.
A cash payment journal will show the cash movements of a business. Therefore, it is an important document that offers useful information to any business. Keeping a clutter-free and consistent cash log will help a business in making good business decisions.
Cash Disbursement Journal as Proof of Posting
A cash disbursement journal can be used as proof of transactions. However, it should be consistent and authentic to prove its worth.
A business would transfer account balances from a cash journal to subsidiary ledgers and then the general ledger. Therefore, there are two possible methods to prove the authenticity of a cash payment journal.
- The total balances of each subsidiary ledger account should be the same as the total of each subsidiary ledger control account on the general ledger.
- The general ledger should always show the same balance for its debit and credit sides. It means the general ledger should be in balance at all times.
If these two conditions are satisfied, a business can be assured that it has transferred correct data from the cash payment log to other ledgers.
Cash Disbursement Journal Vs Cash Receipt Journal
A cash receipt journal is a chronological record of the cash receipts of a business. It records every cash transaction where a business receives a payment or income.
A cash receipt journal has a similar structure and format to the disbursement journal. It is created and maintained similarly as well.
The transaction details, account types, and other details recorded on a cash receipt journal are also similar to the disbursement journal. Both of these journals would use the same subsidiary and general ledger control accounts.
In practice, a disbursement and a cash receipt journal complement each other. These two form the cash book of a business. Therefore, if a business uses one of these two, it should also use the other.
Like a payment journal, a receipt journal would also work as a source document. Balances on a cash receipt journal can be carried forward to subsidiary ledgers and eventually to the general ledger accounts.
A business would record discounts made to buyers and customers like it records the discounts received. Similarly, it will record inventory returns and damages paid to its customers in the cash receipt book as reversal entries.
In short, there are more similarities in a cash disbursement and cash receipt journal than differences.
