Following Outgoing Cash with the Cash Disbursements Journal

By Lita Epstein from Bookkeeping For Dummies

8 of 12 in Series: The Essentials of Bookkeeping Transactions

The Cash Disbursements journal is the first place you record cash that goes out of the business and used to pay bills, salaries, rents, and other necessities. The Cash Disbursements journal is the point of original entry for all business cash paid out to others.

No businessperson likes to see money go out the door, but imagine what creditors, vendors, and others would think if they didn’t get the money they were due. Put yourself in their shoes: Would you be able to buy needed supplies if other companies didn’t pay what they owed you? Not a chance.

Each entry in the Cash Disbursements journal must not only indicate how much cash was paid out but also designate which account will be decreased in value because of the cash disbursal. For example, cash disbursed to pay bills is credited to the Cash account (which goes down in value) and is debited to the account from which the bill or loan is paid, such as Accounts Payable.

In the Cash Disbursements journal, the Cash account is always the credit, and the debits vary depending upon the outstanding debts to be paid. The example shows what a series of transactions look like when they’re entered in a Cash Disbursements journal.

The first point of entry for outgoing cash is the Cash Disbursements journal.

The Cash Disbursements journal in the figure has eight columns of information:

Date: The date of the transaction.
Account Debited: The name of the account debited as well as any detail about the reason for the debit.
Check #: The number of the check used to pay the debt.
PR (post reference): Where the transaction will be posted at the end of the month. This information is filled in at the end of the month when you do the posting to the General Ledger accounts.

If the entry to be posted to the accounts is summarized and totaled at the bottom of the page, you can just put a check mark next to the entry in the PR column. For transactions listed in the General Credit or General Debit columns, you should indicate an account number for the account into which the transaction is posted.
General Debit: Any transactions that don’t have their own columns; these transactions are entered individually into the accounts they impact.

For example, according to the figure, rent was paid on March 1st and will be indicated by a debit in the Rent Expense.
Accounts Payable Debit: Any transactions that are posted to the Accounts Payable account (which tracks bills due).
Salaries Debit: Debits to the Salaries expense account, which increase the amount of salaries expenses paid in a particular month.
Cash Credit: Anything that’s deducted from the Cash account.

You can set up your Cash Disbursements journal with more columns if you have accounts with frequent cash disbursals. For example, in the figure, the bookkeeper for this fictional company added one column each for Accounts Payable and Salaries because cash for both accounts is disbursed multiple times during the month.

Rather than having to list each disbursement in the Accounts Payable and Salaries accounts, she can just total each journal column at the end of the month and add totals to the appropriate accounts. This approach saves a lot of time when you’re working with your most active accounts.