Overview:

A cash payments journal is a special journal that records all the payments that an entity made by cash.

This special journal is created when the entity makes the accounting records using an accounting manual, and many cash payments transactions occur.

Especially when there are large cash payments transactions that occur in the business every day.

Records these transactions separately from the general journal help the entity reduce large amounts of transactions from the general journal.

Explanation and Example:

If an entity uses an accounting system to record its accounting information, all financial transactions are records in the system by making journal entries. All of the entries will directly affect the financial statements and other books like general ledgers and trial balance.

The cash payments journal records only cash outflow payments, while cash collection is recording in the cash receipt journal.

The common cash payments transactions that record in this journal are paying to creditors, payments to suppliers, payments to the employee, and a fund that returns to customers.

If the entity makes credit purchases, then all the purchases are recordings in the purchase journal.

The cash payments journal is not much different from another special journal. Its main objective is to make collect all the similar types of transactions together.

And the key information that includes in this journal is the entity name and accounting period that these cash transactions have occurred.

Accounting number and accounting reference is also the importance and should be included. Debit and credit for both cash accounts and its correspondence accounts should also include.

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The key information in this journal is the name of accounts, Accounting Reference, debit amount, and credit amount.

Credit amount is obviously cash, while the debit amount is normally expenses or assets that the payments are made to.

For example, if the payments are made for wages expenses, then the debit account should be the wage account.

Cash payment journal:

For example, the company makes payments to workers on the workers’ wages amounts to USD500,000 in cash.

In this case, the cash payment journal would be,

Debit workers’ wages amount USD 500,000

Debit Cash on hand amount USD 500,000

(Memo: workers’ wages for July 2017)

Another example related to the cash payment journal: Company makes payment to the supplier for the company’s car purchased last week amount to USD 50,000 in cash.

In this case, we expected that the company already record the account payable to the supplier for purchasing the company car amount USD 50,000.

In this case, we record as following:

Debit account payable ( supplier name maybe) amount USD 50,000

Credit cash amount USD 50,000

(Memo: Payment for a company car)

However, if the company fail to recognize account payable for USD50,000, the recording should be as follow:

Debit fixed assets ( car is the fixed assets) USD 50,000

Credit cash USD 50,000

(Memo: Payment for the company’s car)

Sinra