What it means
In a busy business, payments happen all day long. Writing a full accounting entry for each one in the general journal would be slow and repetitive.
A cash disbursements journal solves this by recording every cash payment in a single book, with columns for the usual accounts. Typical columns include the date, the cheque or reference number, who was paid, and the amount credited to cash.
Further columns show the accounts debited, such as accounts payable, wages, rent or other expenses. Each row is one payment, and each column can be totalled.
At the end of the period, the totals are posted to the general ledger (the main set of accounts). The credit to cash is posted once as a single total, and the debit columns are posted to their respective accounts.
This is much faster than posting each payment individually. The journal also helps control.
Because every payment appears in sequence with a reference number, it is easier to spot gaps, duplicates or odd amounts. It can be compared with the bank statement during bank reconciliation to find items that have not cleared.
Modern accounting software usually generates the same information automatically, so you may not see a physical journal. The ideas still apply, though, and understanding them helps you read payment reports.
Some businesses still keep a simplified journal for petty cash or for cheque payments. Many businesses use more than one special journal.
Alongside the cash disbursements journal, they may keep a cash receipts journal, a sales journal and a purchases journal. Together, these cover most routine transactions, leaving the general journal for unusual entries such as corrections.
In practice
Real-world examples
Example 1
A small garden centre writes 25 cheques a month for suppliers, wages and utilities. The bookkeeper lists each in the cash disbursements journal, totals each column on the last day, and posts the totals. The ledger reflects the payments without 25 separate postings. The owner also gets a clear weekly summary of where the money went.
Example 2
A school administrator records payments for teaching supplies, repairs and catering in a journal with separate columns. At the end of term, the totals show how much was spent in each category. The governing board uses the summary in its budget review. Parents and trustees can then see how much was spent on each purpose.
Example 3
An accountant reconciling a client's bank statement finds a $1,450 cheque missing from the bank record. Using the journal, she sees that it was written two weeks earlier and has not been presented yet. She lists it as an outstanding item. The reconciliation then agrees to the penny, and the accountant moves on to the next item.
Think of it
A cash disbursements journal records every payment you make-your outgoing cash log.
Formula
Calculation
Total cash credit = Sum of all debit columns in the journal
Worked example: in one week, a business records three payments in its cash disbursements journal. It pays suppliers $12,500 (debit accounts payable), wages $8,200 (debit wages expense) and other costs $3,300 (debit other expenses).
Step 1: Add the debit columns: $12,500 + $8,200 + $3,300 = $24,000.
Step 2: The credit to cash for the week must equal $24,000.
The journal balances when total debits of $24,000 equal the total credit to cash of $24,000. If the two totals differ, there is a mistake in a column or a missing entry.Case study
Seen in the real world
Dunmore Print Shop is an illustrative, fictional business that recorded every payment as a separate entry in the general ledger. At month end, the owner took two days to post about 180 payments and still made errors. A part-time accountant suggested a cash disbursements journal.
With the journal, payments were listed as they were made, with columns for suppliers, wages, rent and other costs. At month end, the totals were posted in about an hour. The accountant noticed a duplicate payment of $640 to a paper supplier that had been missed before, and recovered it.
The illustrative lesson is that a good journal saves time and acts as a control. Seeing all payments in order makes mistakes visible. The shop now reviews the journal every Friday, and the owner signs the weekly total as a simple check before the figures are posted.
Watch out
Common mistakes
- Posting each payment to the ledger and the journal, which duplicates the entry.
- Letting the total of the debit columns differ from the credit to cash without investigating.
- Leaving out cheque numbers or payee names, which weakens the audit trail.
Questions
People also ask
What is the difference between a cash disbursements journal and a cash receipts journal?
One records money paid out and the other records money received.
Is the journal still used with accounting software?
The underlying data is, though the software creates the report automatically instead of a physical book.
Who maintains it?
Usually the bookkeeper or accounts payable clerk, and someone else should review it to maintain control.
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