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How to Create and Update Your Cash Disbursement Journal

Does your small business work with cash? More than likely, the answer is yes. And when you have cash expenses, you should record them in a cash disbursement journal.

Creating journal entries for small business transactions should be like second nature. But with so many types of entry types, it can be hard to keep up. Read on to get a closer look at recording cash disbursements in your books.

What is cash disbursement?

A cash disbursement is a payment that a business makes with cash or a cash equivalent. Cash disbursement payments show how much money is flowing out of a business. You can compare your company’s disbursements to the money coming into your business to determine whether you have a positive or negative cash flow.

So, what is considered a cash payment? Is it just cash? Turns out, no. Cash payments include:

Purchasing inventory or office supplies, paying out dividends, or making business loan payments with cash or cash equivalents are examples of disbursements.

Your cash disbursement journal can provide an up-to-date snapshot of these cash payments during a specific time period (e.g., quarter or year). Missing a journal entry can throw off your running balance and cause you to misread your financial health.

Keep in mind that cash disbursements are just one half of the coin. You must also record cash receipts when you collect money from your customers. Record incoming cash payments in a separate cash receipts journal.

Creating your cash disbursement journal

Your cash disbursement journal is a record of all of your business’s outflowing cash. By itemizing all cash payments, this journal helps businesses organize their outgoing cash records.

Before creating a disbursement journal, you must know:

  • When to create them
  • What information to include
  • How they should look
  • Where the journal entries go

Learn more about creating your cash disbursement journal below.

When do you create a journal?

Create and update a cash disbursement journal whenever you purchase something with cash or a cash equivalent.

Let’s say you write a $320 check for a new printer. You would create a new line in your journal for the purchase.

What information should you include?

When it comes to recording cash disbursements, be as specific as possible. Don’t just include the amount of money you spent on the transaction.

Cash disbursement journals should include:

  • Date
  • Payee name
  • Amount debited or credited
  • Accounts involved (e.g., payment method)
  • Purpose of the transaction

Depending on the payment method, you may also want to record additional information, like the check number.

When recording your disbursement journal, pull information from purchase receipts, checkbook stubs, or invoices.

How does a cash disbursement journal look?

Because you’re spending cash or cash equivalents, you will need to decrease the cash or cash equivalents account. You can do this by crediting it. You must also debit the corresponding expense account.

Here’s an example of how your journal entries may look.

Date Account Notes Debit Credit
X/XX/XXXX Expense
Cash
Expenses from Company ABC X  
X

After creating journal entries, add them to your cash disbursement journal. Your journal should look like this:

Where does the cash disbursement journal go?

visual of a cash disbursement journal
After creating a cash disbursement journal, your work isn’t over. Use the information from your disbursement journal to update your other records.

Input the information from your disbursement journal into your small business general ledger. Transfer debit and credit amounts, the date, and a description of the transaction to your ledger.

After posting the information to your ledger, calculate new balances for each account.

In addition to transferring cash disbursement journal information to your general ledger, you can also use it for reconciling bank statements. That way, you can ensure your journal entries match your bank statements.

Cash disbursement journal example

Let’s say that you make the following cash or cash equivalent payments:

  • Loan payment of $250
  • Inventory purchase of $500
  • Dividend payment of $2,500
  • Office supplies purchase of $200

First, create journal entries that credit your cash accounts and debit the corresponding accounts.

Date Account Notes Debit Credit
8/26/2019 Loan Accounts Payable
Cash
Loan #1 payment to Lender ABC 250  
250
Date Account Notes Debit Credit
8/26/2019 Inventory
Cash
Wood and glue purchased from Company XYZ 500  
500
Date Account Notes Debit Credit
8/26/2019 Dividends Accounts Payable
Cash
Dividend payments made to shareholders 2,500  
2,500
Date Account Notes Debit Credit
8/26/2019 Office Supplies
Cash
Paper, ink, and keyboards purchased from Office AYK 200  
200

Now, update your journal so it looks as follows:
visual of cash disbursement journal entry example

Tired of manually handling your books? Patriot’s online accounting software can streamline the way you track incoming and outgoing money. Start your self-guided demo today! 

This is not intended as legal advice; for more information, please click here.

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