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Chapter 17, Section 2The Cash Payments Journal

What Do You Think?Why is it important to keep track of cash paid out?

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Main IdeaThe cash payments journal is used to record the cash a business pays out.

You Will Learn how to record cash payment transactions. how to post from the cash payments journal.

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Key Terms cash payments journal schedule of accounts payable proving cash

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Using the Cash Payments JournalThe cash payments journal is used to record all transactions in which cash is paid out. These transactions include

payments to creditors for items bought on account, payments for various expenses, payments for wages and salaries, and cash decreases for bank service charges and bankcard fees.

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Using the Cash Payments Journal

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Recording the Cash Purchase of an AssetA transaction involving a cash purchase is recorded using the following steps:

Enter the transaction date in the Date column. Enter the check number in the Document Number column. Enter the name of the account debited in the Account Name

column. Enter the debit amount in the General Debit column. Enter the credit amount in the Cash in Bank Credit column.

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Recording a Cash Purchase of MerchandiseRecord merchandise purchases for resale by following these steps:

1. Enter the transaction date in the Date column.

2. Enter the check number in the Document Number column.

3. Enter the name of the account debited in the Account Name column.

4. Enter the Purchases amount in the General Debit column.

5. Enter the check amount in the Cash in Bank Credit column.

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Recording a Cash Purchase of Merchandise

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Recording a Payment on AccountFollow these steps to record a payment on account and purchase discount:

1. Enter the transaction date in the Date column.

2. Enter the check number in the Document Number column.

3. Enter the creditor’s name in the Account Name column.

4. Enter the original purchase amount in the Accounts Payable Debit column.

5. Enter the purchase discount amount in the Purchases Discounts Credit column.

6. Enter the check amount in the Cash in Bank Credit column.

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Recording a Payment on Account

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Recording Other Cash PaymentsTo record a check written to pay for shipping charges when merchandise is sent FOB shipping point, follow these steps:

1. Enter the transaction date in the Date column.

2. Enter the check number in the Document Number column.

3. Enter the name of the account debited in the Account Name column.

4. Enter Transportation In amount in the General Debit column.

5. Enter the check amount in the Cash in Bank Credit column.

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Recording Other Cash Payments

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Recording Payment of PayrollTo record the payroll transaction, follow these steps:

1. Enter the transaction date in the Date column.

2. Enter the check number in the Document Number column.

3. Enter the name of the account debited in the Account Name column.

4. Enter the payroll amount in the General Debit column.

5. Enter the net pay in the Cash in Bank Credit column.

6. Enter the names of the accounts credited in the Account Name column and the amount of each liability in the General Credit column.

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Recording Payment of Payroll

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Recording Bank Service ChargesBank service charges are automatically deducted from the checking account. The charges decrease the Cash in Bank account.

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Recording Bankcard FeesBankcard fees are automatically deducted from the business’s checking account. This transaction is recorded as a decrease in cash in the cash payments journal.

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Posting from the Cash Payments JournalTo post from the Cash Payments Journal, follow these steps:

Enter the transaction date in the Date column of the subsidiary ledger account.

Enter the journal letters and page number in the Posting Reference column.

Enter the Accounts Payable Debit amount from the journal in the Debit column of the subsidiary ledger account.

Compute and enter the new balance in the Balance column. Draw a line through the Balance column if the account has a zero balance.

Enter a check mark in the Posting Reference column in the cash payments journal.

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Posting from the General Debit ColumnTo post from the General Debit column, follow these steps:

Enter the transaction date in the Date column of the general ledger. Enter the journal letters and page number in the Posting Reference

column. In the Debit column, enter the amount from the General Debit column of

the cash payments journal. Compute and enter the new balance in the appropriate Balance column. Enter the account number in the Posting Reference column of the cash

payments journal.

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Totaling, Proving, and Ruling the Cash Payments JournalThe cash payments journal is proven the same way as other special journals.

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Posting Column Totals to the General LedgerAt the end of the month, column totals from each special account column are posted to Accounts Payable, Purchases Discounts, and Cash in Bank in the general ledger. The totals of the General Debit and Credit columns are not posted.

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Proving the Accounts Payable Subsidiary LedgerA schedule of accounts payable is prepared after posting the column totals. The accounts payable subsidiary ledger is proven when the total schedule of accounts payable equals the balance of the Accounts Payable account in the general ledger.

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Proving the Accounts Payable Subsidiary Ledger

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Proving CashProving cash is the process of verifying that cash recorded in the accounting records matches the amount entered in the checkbook. To prove cash, follow these steps:

On the first line, enter the Cash in Bank beginning balance. On the next line, enter the total cash received during the month. Add the first and second lines. Subtract the cash payments for the month. Compare the result to the balance shown on the last check stub in the

checkbook.

If the balances are not equal, look for errors.

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Key Terms Review cash payments journal

A special journal used to record all transactions in which cash is paid out or decreased.

schedule of accounts payable

A list of all creditors in the accounts payable ledger, the balance in each account, and the total amount owed to all creditors.

proving cash

The process of verifying that cash recorded in the accounting records agrees with the amount entered in the checkbook.

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