The Cash Payments Journal

The purpose of this journal is to record all the transaction where cash moves out of the business bank account.

Bank is an asset as the money belongs to the business. Furthermore this asset decreases as money is paid. Assets decrease on the credit side. Thus bank account should be credited with the total amount of the bank column in the journal at the end of the month. Since the amount paid during the month is made up of various types of transactions such as trading stock, rent paid, interest paid, etc a collective name “total payments” is used rather than the usual practice of an account name as contra entry.

Many other accounts will be debited when the double entry principle is applied. All these accounts that are debited should ad up to the bank amount for the month. Some will be debited at month end namely column totals such as trading stock whereas others namely those in sundry accounts such as rent paid are debited on the day of transaction. The contra entry for all these accounts are bank.

cpj t accounts

Finally the non-cash columnĀ  discount received should be considered:

Discount is received when paying creditors early. What the business pay the creditors are less than what is owed to creditors. The difference between what is paid and owed is called discount received. The discount received therefore do not form part of bank total. The business owes creditors less money. In fact the sum of what is paid as well as the discount received is by how much the debt reduces. If money is owed to creditors it is a liability. Liabilities decrease as creditors are owed less money after paying them. Creditors control need to be debited as liabilities decrease on the debit side. The contra entry is bank and discount received as there are two legs that together resulted in less debt. According to double entry principle discount received will be credited with creditors control as contra entry. Bank was already addressed at top. As column totals are involved the posting date is month end.

cpj discount received