|So, you want to
by Bean Counter's Dave Marshall
|Introduction||Lesson 1||Lesson 2||Lesson 3||Lesson 4||Lesson 5||Lesson 6|
|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
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.
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.
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.
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.
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:
So you at least have an idea of what a
Cash Disbursements (Payments) Journal looks like click below.
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.
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:
To see what the Cash Receipts Journal
looks like click below.
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
Other documents used to support and verify your check book entries and balance include:
Sample Daily Cash Collection Report
For January 11,xxxx for Ma and Pa's Antiques
Sample Deposit Slip For January 11,xxxx
for Ma & Pa's Antiques