So, you want to learn
Bookkeeping!
Cash
by Bean Counter's Dave Marshall

Lesson 1
Recording Cash Transactions


Introduction Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6
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The first step in managing and controlling cash is to accurately record the transactions that affect your Cash Balance. The records that you use depend on whether you have a simple or elaborate bookkeeping system. The following section lists and describes some of the special journals a business might use and then since this tutorial is about cash later isolates only the journals and records related to recording Cash. Some of the following information was borrowed from my So, you want to learn Bookkeeping! - Special Journals tutorial. I discussed the various types of special journals to at least provide those of you that have not taken my Special Journals Tutorial with a basic background and familiarity with special journals.

Flow Of Information into and thru your Accounting and Bookkeeping Records

Source Documents

provides the initial data about business transactions. Checks, Invoices to Customers, and Invoices from Suppliers are some common examples of source documents.

Journals

use the information from the source documents to create a chronological listing of all business transactions and detailed information about each transaction.

General Ledger

uses the information transferred from the journal(s) to summarize the data into individual accounts.

Trial Balance

uses the information from the General Ledger to summarize the data to use for preparing the Financial Statements.

Financial Statements

uses the summarized data contained in the Trial Balance to prepare the business's financial reports .

The chart illustrates that your recording begins with a financial transaction. A source document such as a check, supplier invoice, or customer bill that provides verification that the transaction occurred and the amounts needed to properly record the transaction.

The original entry for the transaction is made in your Special Journals depending on the type of transaction.

The other records are used to summarize entries recorded in your various journals and prepare summarized Financial Records such as your Balance Sheet and Income Statement.

Definition and Descriptions of
Specialized Journals

Journal Definition
A Journal is an accounting record that is used to record the different types of transactions using various source documents. Source Documents are the original sources of information that provide documentation (proof) that a transaction has occurred such as sales invoices (tickets), invoices from suppliers, contracts, checks written and checks received , promissory notes, and various other types of business documents. These documents provide us with the information needed to record our financial transactions in our bookkeeping records. If you recall a transaction is any event or condition that must be recorded in the books of a business because of its effect on the financial condition of the business, such as buying and selling. A business deal or agreement.

Journals are often called or referred to as the books of original entry. The reason is that this is the first place that business transactions are formally recorded. Specialized Journals are journals used to initially record special types of transactions such as sales, cash disbursements, and cash receipts in their own journal. All these journals are designed to record special types of business transactions and post the totals accumulated in these journals to the General Ledger periodically (usually once a month).

You can think of a Journal as a Financial Diary.

The General Journal is the record used to record unusual or infrequent types of transactions. Type of entries normally made in the general journal are depreciation entries, correcting entries, and adjusting and closing entries.

The Cash Payments Journal is a special journal that is used to record all cash that is paid out by a business except for payroll. Columns are set up for types of transactions that occur frequently enough to warrant a separate column. Some examples are Accounts Payable (Payments on Purchases and Services Charged) and Cash Purchases.

The Cash Receipts Journal is a special journal that is used to record all receipts of cash. Columns are set up that indicate the sources of the cash. Two of the major sources of cash for a business are Cash Sales and Collections of Customer Charge Sales. These and other categories that have a lot of activity (transactions) have their own column.

The Sales Journal is a special journal where sales of services and merchandise made on account (business's customer is allowed to charge purchases) are recorded.

The Purchases Journal is a special journal that is used to record all purchases and various expenses and other charges from suppliers that a business has an open account with (supplier allows the business to charge purchases).

The Payroll Journal is a special journal that is used to record and summarize salaries and wages paid to employees and the deductions for taxes and other authorized employee withholding amounts. Note: Many small businesses use the Cash Disbursement Journal to record their payroll which is also acceptable.

The Sales Return & Allowances Journal is a special journal that is used to record the returns and allowances of merchandise sold on account.

The Purchase Returns & Allowances Journal is a special journal that is used to record the returns and allowances of merchandise purchased on account.

Hybrid Journals
Basic Journals are provided as guides. Remember it's your business and you can design and customize your bookkeeping records any way you want to speed up the recording of your transactions and summarize your business financial activity . Even the IRS, with a few exceptions, allows you to maintain your "books" any way you want as long as they accurately reflect your income.

    Why Use Special Journals
  • Groups and records transactions of a like nature. A familiar example is recording all cash received by a business in one place.
  • Saves time with summary and less frequent postings to the General Ledger.
  • Allows a business to have different individuals responsible for different journals thereby increasing internal controls and allocating the record keeping workload.

Let's make a simple chart for five of the major Special Journals that tells us what type of transactions are recorded in these special journals.

  • Sales/Revenue Journal
      Type of Transaction Recorded:
    • Product Sales/Fees billed to customers who we have granted credit (charge sales)

  • Cash Receipts Journal
      Types of Transactions Recorded:
    • Cash product sales / fees
    • Cash collected on customer accounts
    • Any other receipt (source) of cash

  • Purchases Journal
      Type of Transactions Recorded:
    • Purchase of any expense on account
    • Purchase of supplies on account
    • Purchase of equipment on account
    • Purchase of any other asset on account

  • Cash Payments Journal
      Types of Transactions Recorded:
    • Cash paid for expenses
    • Cash payments to our suppliers on account or cash purchases
    • Cash purchase of supplies
    • Any other cash payment

  • Payroll Journal
      Type of Transaction Recorded:
    • Cash payments to employees for salary & wages

See, it's really quite easy to determine what journal to use to record business transactions. A little common sense goes a long way.

Remember it's your business and you could if you had a special need design your own special journal. If you wanted to know how much cash you received from customers in different states without doing a special analysis you could set up special cash receipts journals for all 50 states. But in this day and age a computer with good bookkeeping software would provide you with this and many more types of customer analyses.

What Journal Do I Use ?

Want to make determining what journal to use even easier ? I knew you'd say yes and make me work harder. The following table is set up to guide you to the proper journal by answering some simple questions.

1.Did You Receive Cash ?
YES Record transaction in Cash Receipts Journal
  NO Answer question 2
2.Did you write a check ?
YES-a check was written Answer Question 2.(a)
    2.(a) Did you pay an employee for salary or wages earned ?  
    YES Record transaction in Payroll Journal
      NO Record transaction in Cash Disbursements Journal
  NO-a check was not written Answer Question 3.
3.Did you bill a product or service to a customer and grant credit (on account) ?
YES Record transaction in Sales / Accounts Receivable Journal
  NO Answer question 4
4.Did you incur an expense or purchase supplies, inventory, or an asset and the supplier granted you credit (on account) ?
YES Record transaction in Purchases / Accounts Payable Journal
  NO Looks Like the you need to record the entry in the General Journal

All the Special Journals summarize the daily business transactions and feed their summarized information to the appropriate accounts in the General Ledger.

Cash Journals and Records

Since this Tutorial is all about Cash, let's isolate and discuss the records that are used to monitor and control a business's Cash.

Cash Disbursements/Payments Journal

Definition & Purpose

The Cash Payments Journal is a special journal that is used to record all cash that is paid out by a business except for payroll. Businesses with just a few employees could also use this journal to record their payroll checks; however, I recommend that you use a special payroll journal in order to have all your payroll information in one place.

The entries recorded in this journal are a debit to expense accounts, the purchases account, or the accounts payable control account (a debit is also posted to the supplier's Accounts Payable Subsidiary Account) and a credit to the cash account.

The Cash Disbursements Journal lists all checks, in check number order, paid during the month. It posts total checks written as a credit entry to the Cash Account. All payments to suppliers that have an Accounts Payable Subsidiary Ledger Account are Debited to the Accounts Payable Control Account and Credited to our Cash Account.

A cash disbursements journal typically has these basic features:

  • Header with the Name of the Journal and Page
  • Debit and Credit Columns to record the amount of the transaction
  • Check Number (Reference) Column to record the check number of all checks issued
  • Date Column to record the date of the transaction
  • Description Column to record the name of the payee/supplier (who written to), and any other explanation or additional information about the transaction
  • Entry Number used as a reference to a specific transaction on the journal's page
  • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary ledger has also been posted (updated).
  • Columns for each regularly occurring types of payment, expense, or expenditures and a section for other expenditures/payments.

So you at least have an idea of what a Cash Disbursements (Payments) Journal looks like click below.
Sample Cash Disbursements Journal

Payroll Journal

Definition & Purpose

The Payroll Journal is a special journal that summarizes the payroll information and records the payroll checks issued by pay period and is used to post the summary totals to the General Ledger.

A Payroll Journal is normally used as the record (special journal) Small businesses could use their Cash Disbursement Journal but I recommend you use a special journal for recording your payroll transactions. This provides you with all the information about payroll in one convenient place (your payroll journal).

The Payroll Journal records the expense accounts where salary and wage gross amounts are charged. In addition, all the deductions taken from salary and wages are charged to the appropriate liability or expense offset account.

I know, you want to know what a Payroll Journal looks like so click below.
Sample Payroll Journal

Cash Receipts Journal

Definition & Purpose

The Cash Receipts Journal is a special journal that is used to record all receipts of cash.

The entries recorded in this journal are a debit to cash and a credit to the accounts receivable control account (a credit is also posted to the customer's Accounts Receivable Subsidiary Account), sales, or other accounts (normally miscellaneous revenue accounts or loans).

This journal is used to record all the cash that we receive. The biggest sources of cash for businesses result from cash sales and collections from customer's who we have set up on open account (allowed them credit).

A Cash Receipts Journal typically has these basic features:

  • Header with the Name of the Journal and Page
  • Entry Number used as a reference to a specific transaction on the journal's page
  • Date Column to record the date of the transaction
  • Description Column to record the customer's name or account and any other explanation or additional information about the transaction
  • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Receivable Ledger has also been posted (updated).
  • Debit Column for our Cash and Credit Columns for our Accounts Receivable Control Account and Cash Sales.
  • Special Other Credits Column with its related Posting Reference and Amount Columns.
    We use these three columns to record any other transactions resulting from receiving cash. Some examples are collection of a Note Receivable or borrowing money from a bank (Note Payable). In other words, we use these columns for any transactions that don't have their own special credit column.

To see what the Cash Receipts Journal looks like click below.
Sample Cash Receipts Journal

Check Book, Register, or Cash Summary Report

Since most of us have a personal checking account, the check book is a record that we already are somewhat familiar with. The same basic practices that apply to maintaining an accurate personal check book also apply to a business check book.

One more time. Although almost everyone is familiar with what a check book looks like humor me by clicking below.
Sample Check Book

Other documents used to support and verify your check book entries and balance include:

  • Actual checks
  • Deposit Slips
  • Deposit Book
  • Daily Cash Report
  • Bank Statement
  • Bank Reconciliation
  • Bank Notices
  • Customer Credit Card Slips

Sample Daily Cash Collection Report For January 11,xxxx for Ma and Pa's Antiques
Daily Cash Report

Sample Deposit Slip For January 11,xxxx for Ma & Pa's Antiques
Deposit Slip

The main purpose of this lesson was to illustrate that the starting point of monitoring and controlling Cash begins with good record keeping. Also to introduce those not familiar with Special Journals to what they are and what they look like. For those of you that have taken my So, you want to learn Bookkeeping - Special Journals Tutorial, it served as a quick review.

Now we're ready to roll along and discuss Petty Cash.

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