A journal is a book or record of transactions that companies maintain to aid their financial accounting process. Usually, it is the first step in the accounting cycle. Once a company identifies any financial transaction, it must record it with the amount and any relevant details in a journal. From there, it goes into the general ledgers and, ultimately, the financial statements.
Companies may maintain several types of journals. One of these includes the cash journal to record all cash transactions. Companies may further segregate this journal into cash payment and cash receipt journals.
What is a Cash Payment Journal?
A cash payment journal records all financial transactions that require cash outflows. It does not record any future cash payments. Instead, the cash payment journal only records entries once they occur. These payments can be through cash or other cash equivalent means, including bank, checks, and electronic fund transfers. Another name for the cash payment journal is the cash disbursement journal.
Nowadays, cash payment journals have become obsolete since most companies transact on credit. However, some small businesses still maintain and use a cash payment journal. Several types of transactions may become a part of this journal. Some of those include the following:
- Inventory or merchandise purchases
- Payments to suppliers
- Payments for daily expenses
- Loan repayments
- Shipping and freight expenses
Sometimes, companies may also pay these expenses through other means. Therefore, it is crucial to identify only those that have occurred through cash and record them in the cash payment journal.
How does a Cash Payment Journal work?
Depending on needs, a company may only maintain a single cash journal. However, it is still crucial to segregate payments from receipts. In the case of a single journal, companies create two sides. Usually, the left side includes the disbursements and the right consists of receipts. However, with higher transactions, companies may separate the cash payment journal from cash receipts.
A cash payment journal only records cash payments. These payments can be to any party, as long as they are in cash and not through other means. However, the name may be confusing as it only suggests cash transactions. In practice, the cash payment journal records all settlements that occur through cash or cash equivalent means.
What is the format for the Cash Payment Journal?
There is no specific cash payment journal format that fits the needs of all companies. Each company will customize it to meet its requirements. Usually, the cash payment journal includes some common components that are crucial in transferring information to the general ledger. Some of this information may also aid in other areas, such as credit control, etc.
Each cash payment journal includes the following crucial information.
- Date
- Payee name
- Amount of payment
- Account for transaction
- Payment method (cash, cheque, bank, etc.)
- Reason for payment
Apart from these, companies may include more information in the cash payment journal as needed.
Conclusion
A cash payment journal is a record of all cash payments that companies make. Although the name is confusing, it includes cheques, bank transfers, and other payment methods. The cash payment journal may be a part of the cash journal or a standalone. Nonetheless, it will include some crucial elements, as listed above.
Post Source Here: Cash Payment Journal: Definition, Example, Entry, Format, What It Is
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