Ch. 17: The Cash Payments Journal

Accounting IIMs. Alltucker

What you will learn: The purpose of the cash payments journal How to record transactions in the cash payments journal How to post from the cash payments journal How to prepare a schedule of accounts payable How to prove cash

Why it’s important: Cash is a major asset of a business, therefore, it is

essential that a business keep accurate records of the both the inflow and the outflow of cash.

Learning Objectives

Used to record all transactions in which cash is paid out or decreased Payments to creditors Cash purchases of merchandise or other assets Payments for various expenses Payments for wages and salaries Cash decrease for bank service charges

Source document: check stubs and bank statements

The Cash Payments Journal

Cash Payments Journal

Recording the Cash Purchase of an Asset

Business Transaction

On December 17, OnYour Mark paid $1,500 toKeystone InsuranceCompany for thepremium on a six-month policy, Check 1001.

JOURNAL ENTRY

Enter the date Enter the check number Enter the name of the account debited If there isn’t a special column for the

account, use the general debit or credit columns

Enter amount of the transaction in the cash in bank credit column

Recording the Cash Purchase of an Asset

Recording a Cash Purchase of Merchandise

Business Transaction

On December 19, OnYour Mark purchasedmerchandise fromFastLane Athletics for $1,300, Check 1002.

JOURNAL ENTRY

Enter the date Enter the check number Enter the name of the account If no special column, enter the amount in the

general debit and credit columns Enter the amount of the check in the cash in

bank credit column

Recording a Cash Purchase of Merchandise

On December 24 On Your Mark paid $2254 to Pro Runner Warehouse for merchandise purchased on account, $2300 less a discount of $46, Check 1003.

Recording a Payment on Account (with a purchase discount)

241003Pro Runner Warehouse 2300 46 2254

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Enter the date Enter the check number Enter the creditors name Enter the amount of the ORIGINAL purchase in

the A/P debit column Enter the amount of the purchases discount in

the purchases discount credit column Enter the amount of the check in cash in bank

credit column

Recording a Payment on Account (with a purchase discount)

On December 24 On Your Mark issued Check 1004 for $275 to Dara Delivery Service for shipping charges on merchandise purchased from Sports Link Footwear.

Recording Other Cash Payments

241004Transportation In 275 275

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Enter the date Enter the check number Enter the name of the account debited There is no special column for Transportation

In, enter the amount of the expense in the general debit column

Enter the amount of the check in cash in bank credit column

Recording Other Cash Payments

Information to record payroll transactions in journals is taken from the payroll register

Steps: Enter the date Enter the check number Enter the name of the account debited Enter the amount of payroll (GROSS PAY) in the

General debit column Enter the net pay in the cash in bank credit column On the next four lines enter the names of the

accounts credited and the amount of the liability in the general credit column

Refer to page 462 as a reference

Recording Payment of Payroll

On Dec 31 on Your Mark wrote Check 1012 for $2974 to pay the payroll of $4000 (gross) for the pay period ending Dec. 31. The following amounts were withheld: Employee Federal Income Tax $640 Employee State Income tax $80 Social Security $248 Medicare tax $58

Recording Payment of Payroll

Recording Payment of Payroll

311012Salaries Expense 4000Emp. Fed. Inc. Tax Pay. Emp. State Inc. Tax Pay.Social Sec. Tax Pay. Medicare Tax Pay.

64080

24858

2974

MAKE SURE THAT DEBITS EQUAL CREDITS BEFORE CONTINUING

Bank service charges are automatically deducted from the checking account

No check is written BUT charges result in a decrease to cash—

the transactions are recorded in cash payments

Recording Bank Service Charges

Recording Bank Service Charges

Most banks charge a fee for handling bankcard sales

Automatically deducted from the checking account

Appears on the bank statement as a deduction

Recording Bankcard Fees

Recording Bankcard Fees

31 Misc. Expense 20 20

Daily postings are made Steps:

Enter the date of transaction Enter journal letter and page number: CP5 In debit column enter the amount recorded from

journal Compute new balance Return to the cash payments journal and enter a

check mark in the post ref column See page 464-465

Posting to the Accounts Payable Subsidiary Ledger

Enter the date of the transaction in the date column

Enter the journal letter and page number: CP5 In the debit column enter the amount from the

general debit column of CP journal Compute new balance Return to cash payment journal and enter the

account number is post reference Look on page 466 for an example

Posting from the General Debit Column

Totaled in the same manner as the rest of the special journals

Before you prove—check the equality of debits and credits

Once debits = credits, the journal can be ruled Look on page 467 for an example

Totaling, Proving, and Ruling the Cash Payments Journal

Debits

General $9170A/P 9100

$18,270

Credits

General $1026Purch. Disc. 140Cash in Bank 17,104

$18,270

At the end of every month, the totals of each special amount column is posted to the general ledger accounts Accounts payable Purchases discounts Cash in bank

Account numbers for these accounts are written in parentheses below the double rule

A check mark is entered below the double rule in the general debit and credit columns

Look on page 468 for an example

Posting Column Totals to the General Ledger

Prepare a schedule of accounts payable Lists all creditors in the accounts payable

ledger, the balance in each account, and the total amount owed to all creditors

Proven when the total of the schedule of accounts payable = with the balance of the accounts payable controlling account

Look on page 468 in your book

Proving the Accounts Payable Subsidiary Ledger

Process of verifying that cash recorded in the accounting records agrees with the amount recorded in the checkbook

Ideally, business prove cash every day When businesses use special journals the cash in

bank account is updated at the end of every month

May be prepared on plain paper, on accounting stationery, on a special cash proof form, or on a computer

Proving Cash

Steps Record the beginning balance of cash in bank—general

ledger account Enter the total cash received during the month

Total of cash in bank debit column from cash receipts journal Add the first and second lines Subtract the cash payments for the month—total of cash

in bank credit from CP journal Compare this figure to the balance shown on the last

check stub in the checkbook LOOK ON PAGE 471 FOR AN EXAMPLE

Preparing a cash proof

If the balances are not equal: Error should be located and corrected Can occur if a bank service charge or a

bankcard fee was not recorded in either the checkbook or journal

Verify that all disbursements and deposits were recorded

Preparing a cash proof