Ch. 17: The Cash Payments Journal Accounting II Ms. Alltucker

Learning Objectives What you will learn: Why it’s important: The purpose of the cash payments journal How to record transactions in the cash payments journal How to post from the cash payments journal How to prepare a schedule of accounts payable How to prove cash Why it’s important: Cash is a major asset of a business, therefore, it is essential that a business keep accurate records of the both the inflow and the outflow of cash.

The Cash Payments Journal Used to record all transactions in which cash is paid out or decreased Payments to creditors Cash purchases of merchandise or other assets Payments for various expenses Payments for wages and salaries Cash decrease for bank service charges Source document: check stubs and bank statements

Cash Payments Journal

Recording the Cash Purchase of an Asset Business Transaction On December 17, On Your Mark paid $1,500 to Keystone Insurance Company for the premium on a six-month policy, Check 1001. JOURNAL ENTRY

Recording the Cash Purchase of an Asset Enter the date Enter the check number Enter the name of the account debited If there isn’t a special column for the account, use the general debit or credit columns Enter amount of the transaction in the cash in bank credit column

Recording a Cash Purchase of Merchandise Business Transaction On December 19, On Your Mark purchased merchandise from FastLane Athletics for $1,300, Check 1002. JOURNAL ENTRY

Recording a Cash Purchase of Merchandise Enter the date Enter the check number Enter the name of the account If no special column, enter the amount in the general debit and credit columns Enter the amount of the check in the cash in bank credit column

Recording a Payment on Account (with a purchase discount) On December 24 On Your Mark paid $2254 to Pro Runner Warehouse for merchandise purchased on account, $2300 less a discount of $46, Check 1003. 14 1003 Pro Runner Warehouse 2300 46 2254 24

Recording a Payment on Account (with a purchase discount) Enter the date Enter the check number Enter the creditors name Enter the amount of the ORIGINAL purchase in the A/P debit column Enter the amount of the purchases discount in the purchases discount credit column Enter the amount of the check in cash in bank credit column

Recording Other Cash Payments On December 24 On Your Mark issued Check 1004 for $275 to Dara Delivery Service for shipping charges on merchandise purchased from Sports Link Footwear. 14 24 Transportation In 275 275 1004

Recording Other Cash Payments Enter the date Enter the check number Enter the name of the account debited There is no special column for Transportation In, enter the amount of the expense in the general debit column Enter the amount of the check in cash in bank credit column

Recording Payment of Payroll Information to record payroll transactions in journals is taken from the payroll register Steps: Enter the date Enter the check number Enter the name of the account debited Enter the amount of payroll (GROSS PAY) in the General debit column Enter the net pay in the cash in bank credit column On the next four lines enter the names of the accounts credited and the amount of the liability in the general credit column Refer to page 462 as a reference

Recording Payment of Payroll On Dec 31 on Your Mark wrote Check 1012 for $2974 to pay the payroll of $4000 (gross) for the pay period ending Dec. 31. The following amounts were withheld: Employee Federal Income Tax $640 Employee State Income tax $80 Social Security $248 Medicare tax $58

Recording Payment of Payroll 31 Salaries Expense 4000 2974 1012 Emp. Fed. Inc. Tax Pay. 640 80 Emp. State Inc. Tax Pay. Social Sec. Tax Pay. 248 Medicare Tax Pay. 58 MAKE SURE THAT DEBITS EQUAL CREDITS BEFORE CONTINUING

Recording Bank Service Charges Bank service charges are automatically deducted from the checking account No check is written BUT charges result in a decrease to cash—the transactions are recorded in cash payments

Recording Bank Service Charges

Recording Bankcard Fees Most banks charge a fee for handling bankcard sales Automatically deducted from the checking account Appears on the bank statement as a deduction

Recording Bankcard Fees 31 20 20 Misc. Expense

Posting to the Accounts Payable Subsidiary Ledger Daily postings are made Steps: Enter the date of transaction Enter journal letter and page number: CP5 In debit column enter the amount recorded from journal Compute new balance Return to the cash payments journal and enter a check mark in the post ref column See page 464-465

Posting from the General Debit Column Enter the date of the transaction in the date column Enter the journal letter and page number: CP5 In the debit column enter the amount from the general debit column of CP journal Compute new balance Return to cash payment journal and enter the account number is post reference Look on page 466 for an example

Totaling, Proving, and Ruling the Cash Payments Journal Totaled in the same manner as the rest of the special journals Before you prove—check the equality of debits and credits Once debits = credits, the journal can be ruled Look on page 467 for an example Credits General $1026 Purch. Disc. 140 Cash in Bank 17,104 $18,270 Debits General $9170 A/P 9100 $18,270

Posting Column Totals to the General Ledger At the end of every month, the totals of each special amount column is posted to the general ledger accounts Accounts payable Purchases discounts Cash in bank Account numbers for these accounts are written in parentheses below the double rule A check mark is entered below the double rule in the general debit and credit columns Look on page 468 for an example

Proving the Accounts Payable Subsidiary Ledger Prepare a schedule of accounts payable Lists all creditors in the accounts payable ledger, the balance in each account, and the total amount owed to all creditors Proven when the total of the schedule of accounts payable = with the balance of the accounts payable controlling account Look on page 468 in your book

Proving Cash Process of verifying that cash recorded in the accounting records agrees with the amount recorded in the checkbook Ideally, business prove cash every day When businesses use special journals the cash in bank account is updated at the end of every month May be prepared on plain paper, on accounting stationery, on a special cash proof form, or on a computer

Preparing a cash proof Steps Record the beginning balance of cash in bank—general ledger account Enter the total cash received during the month Total of cash in bank debit column from cash receipts journal Add the first and second lines Subtract the cash payments for the month—total of cash in bank credit from CP journal Compare this figure to the balance shown on the last check stub in the checkbook LOOK ON PAGE 471 FOR AN EXAMPLE

Preparing a cash proof If the balances are not equal: Error should be located and corrected Can occur if a bank service charge or a bankcard fee was not recorded in either the checkbook or journal Verify that all disbursements and deposits were recorded