What it means
Bookkeeping systems separate transactions by type into specialised journals so that high-volume, similar entries can be recorded efficiently and posted in totals. Sales go into the sales journal, purchases into the purchases journal, receipts into the cash receipts journal, and payments into the cash disbursements journal.
Each journal captures the transaction once, at source, with the detail needed to trace it, and the general ledger receives periodic totals rather than every line. A traditional cash disbursements journal is a columnar record.
The left-hand columns identify the payment: date, cheque or reference number, payee, and a description. The next column shows the credit to cash or bank, which is the amount paid.
The remaining columns analyse where the debit goes: a column for accounts payable (payments to suppliers on account, with the supplier's name so that the payables ledger can be updated), columns for frequent expense categories paid directly (wages, rent, utilities, fuel), a column for purchase discounts received where relevant, and a sundry column with an account reference for anything else. At month end each column is totalled; the total of the analysis columns must equal the total of the cash column, which is the journal's built-in arithmetic check; and the totals are posted to the general ledger with a single entry.
The journal is also a control document. Because it lists every payment in sequence with its reference, gaps in the cheque or reference sequence are visible, and every payment can be matched to a supporting document (an approved invoice, a payroll summary, a signed authorisation).
Auditors test the journal by selecting payments and tracing them back to the supporting documents (validity) and by selecting supporting documents and tracing them forward to the journal (completeness). The journal's totals, combined with the cash receipts journal, reconcile the movement on the bank account from opening to closing balance, and any payment on the bank statement that is not in the journal is a red flag.
In accounting software the same record is generated automatically: every payment entered or imported from the bank feed creates a line with date, payee, amount, reference and account, and the software posts to the ledgers as it goes. The "journal" is a report (the payments listing or bank transactions report) rather than a book, but it is still the primary record of disbursements, still analysed by account, and still the auditor's starting point.
Businesses that pay by several methods (bank transfer, card, cash, direct debit) should ensure that all of them flow into the same record, since card and direct debit payments are the ones most often missed. The journal supports management as well as control.
Analysed totals by category give the period's cash spending by type without a separate analysis; comparing them with budget shows where cash is going against plan; and the payee listing shows concentration and unusual payees.
In practice
Real-world examples.
Example
A retailer's system produces a daily payments register from its bank module, which the finance manager reviews against the approved payment run before release.
Example
A school keeps a columnar cash payments book with columns for each budget heading, giving governors a monthly spending analysis with no further work.
Example
An auditor selects 40 lines from a client's cash disbursements journal and traces each to an approved invoice, finding two without approval.
Think of it
“A cash disbursements journal records every payment you make-your outgoing cash log.
Formula
Calculation
Journal balancing check: Sum of analysis columns (debits) = Total of cash or bank column (credits)
Posting: Column totals to the general ledger at period end; individual supplier payments to the payables subsidiary ledger daily
Worked example. A plumbing contractor's cash disbursements journal for one week:
- 3 Mar, ref 4471, Pipe Supplies Ltd, on account: bank $2,340; accounts payable $2,340
- 3 Mar, ref DD, Fuel card: bank $410; vehicle expenses $410
- 4 Mar, ref 4472, City Council, business rates: bank $980; rates $980
- 5 Mar, ref BACS, Weekly wages: bank $3,850; wages $3,850
- 5 Mar, ref 4473, Valve Co, on account, less 2% settlement discount: bank $1,470; accounts payable $1,500; discount received $30 (credit)
- 6 Mar, ref DD, Van lease: bank $620; lease payments $620
- 6 Mar, ref 4474, Owner drawings: bank $1,200; drawings $1,200
- 7 Mar, ref card, Tool purchase: bank $285; small tools $285
- 7 Mar, ref 4475, Insurance premium (annual, to be prepaid): bank $2,160; prepayments $2,160
Column totals:
- Bank (credit): $2,340 + $410 + $980 + $3,850 + $1,470 + $620 + $1,200 + $285 + $2,160 = $13,315
- Accounts payable (debit): $2,340 + $1,500 = $3,840
- Discount received (credit): $30
- Vehicle expenses $410; rates $980; wages $3,850; lease $620; drawings $1,200; small tools $285; prepayments $2,160: total $9,505
Check: debits $3,840 + $9,505 = $13,345; credits $13,315 + $30 = $13,345. The journal balances.
Posting at week end: credit bank $13,315; debit accounts payable control $3,840; credit discount received $30; debit each expense and other account with its column total. In the payables ledger, Pipe Supplies is debited $2,340 and Valve Co $1,500 to reduce their balances. The cheque sequence 4471 to 4475 is complete. The insurance payment is coded to prepayments, from which $180 a month will be released to insurance expense.
Control use: the bank statement for the week shows an additional direct debit of $95 to a software subscription that is not in the journal; it is added, with a note that the subscription was set up by a technician without approval, and the finance manager reviews whether it is needed.Case study
Seen in the real world.
A haulage company's bookkeeper kept the cash disbursements journal in a spreadsheet, typed up from cheque stubs and bank statements at month end. Direct debits and card payments were entered only if she noticed them on the statement, and the sundry column had grown to a third of all payments because the analysis columns had not been updated for years. The year-end accountant spent three days re-analysing the sundry column, found $18,000 of payments to a "consultant" that the owner did not recognise (the bookkeeper's partner, as it emerged), and found that the journal total for the year was $23,000 less than the bank statement total because of unrecorded direct debits.
The company moved to an accounting system with a bank feed, so that every payment appeared in the journal automatically with its bank reference and could not be omitted; set up analysis codes matching the budget; required a supporting document reference on every line over $100; and had the owner review the payee listing monthly, sorted by payee, which would have shown the consultant payments in the first month. The accountant's year-end fee fell by half, and the owner's comment was that he had been signing cheques for years without ever seeing the list of where the money went.
Watch out
Common mistakes.
- Recording only cheque and transfer payments and missing direct debits, card payments and bank charges, so the journal does not reconcile to the bank.
- An oversized sundry column, which defeats the purpose of analysis and hides unusual payments.
- Writing up the journal from bank statements after the event rather than from authorised payment documents at the time, which removes the control link between authorisation and payment.
Questions
People also ask.
What is the difference between the cash disbursements journal and the cash book?
The cash book combines receipts and payments in one record and acts as the ledger account for cash. The cash disbursements journal is the payments side only, used where receipts and payments are kept in separate journals.
Do computerised systems still have a cash disbursements journal?
Yes, as the payments register or bank payments report. The name may differ but the record, its analysis and its audit role are the same.
Where are supplier payments posted from the journal?
Individually to each supplier's account in the payables ledger, and in total to the payables control account in the general ledger, so that the two agree.
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