Identify Liabilities Due Prepare cash disbursement Update AP records Post to general ledger

What Is a Cash Disbursement Journal?

A cash disbursement journal is a record kept by a company's internal accountants that itemizes all financial expenditures a business makes before those payments are posted to the general ledger. On a monthly basis, these journals are reconciled with general ledger accounts, which are then used to create financial statements for regular accounting periods.

Key Takeaways

• A cash disbursement journal is a record of a company's internal accounts that itemizes all financial expenditures made with cash or cash equivalents.
• A cash disbursement journal is done before payments are posted to the general ledger and is used in creating a general ledger.
• The information included in a cash disbursement journal is the disbursement amount, the check number, the transaction type, the payee, and any other pertinent information.
• Cash disbursement journals can help business owners with cash management by providing clear pictures of inventory expenses, wages, rental costs, and other external expenses.

Understanding a Cash Disbursement Journal

Generally maintained by accounting software, these journals contain essential information such as the disbursement amount, check number, transaction type, payee, payer, and memo. But some businesses record other important details, such as discounts on bulk items purchased. Varying types of expenses may either be listed in different columns or they may receive distinct codes.

Journal managers must be detail-oriented and they must fastidiously record every transaction to help prevent cash from being misdirected or misappropriated. Furthermore, cash disbursement journals can help business owners with cash management by providing clear pictures of inventory expenses, wages, rental costs, and other external expenses. This data can be crucial to making sound business decisions moving forward.

A cash disbursement journal will show a business owner if more cash is leaving the company than coming in and vice versa, allowing them to make adjustments to the business to ensure that there is always a positive cash flow.

A cash disbursement will record any cash transfer, not just that of physical cash. This includes checks and electronic funds transfers or any other cash equivalent.

Cash Disbursement Journal Structure

The cash disbursement journal contains a variety of columns to record the cash outflows of the business. The columns include the date of each cash payment, the details of the other ledger account impacted, the check number issued by the business, the total amount of the cash paid, the credit-control account, which shows the amount deducted from the creditor's account, taxes paid, and special columns that identify the type of transaction, such as advertising, wages, etc.

Each of these columns is then added up at the end of the journaling period to arrive at a total sum. This information is then transferred to the general ledger.

Example of a Cash Disbursement Journal

Suppose in one month, Company ABC purchases a machine from Manufacturer BZY for $5,000 and rents a truck from Rental Trucks for $500. The company would need to credit its cash balances and debit corresponding accounts. The cash journal would look something like this.

This is a very simplistic example but would show how transactions are recorded. Both the cash amount has to be recorded under the cash credit account and the same amount has to be debited from a corresponding account. Depending on the type, that account could be an inventory account or any other traditional balance sheet account. In this case, it has been put in an "other" category account.

For each type of company, a cash disbursement journal will look very different. A retailer's cash disbursement journal would include inventory, accounts receivables, accounts payables, salaries, and wages. A manufacturer may have all of these but also accounts for raw materials purchased and production costs. A software company may only have salaries and hardware (computer) costs.

Regardless of the type of company, a business owner needs to use a cash disbursement journal any time cash is disbursed to keep a record of where money is being spent. It is a critical tool in the success of any business as well as making sure all information provided to the Internal Revenue Service (IRS) is correct at tax time.

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