Accounting 10
Module 3
Lesson 14
Accounting 10
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Lesson 14
Accounting 10
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Lesson 14
Lesson Fourteen - Cash Journal
Topics:
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Cash Control
Introduction to the Cash Journal
The Structure of a Cash Journal
Advantages of a Cash Journal
Comparing the General Journal and Cash Journal
Journalizing in a Cash Journal
Proving the Equality of the Cash Journal
Proving the Cash
Remember These Important Points
Do You Understand?
Self Test
Answers for Self Test
Assignment 14
After studying Lesson 14, the student should be able to
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define accounting terms related to journalizing business transactions.
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explain accounting principles and practices related to journalizing business
transactions.
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record transactions in a multi-column cash journal.
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prove the cash.
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prove the equality of debits and credits in a cash journal.
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total and rule totals in a cash journal.
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Lesson 14
Cash Control
Some degree of internal control is needed in all businesses. In a small business, the
owner-manager can personally supervise small numbers of employees and direct the
affairs of the business in a hands-on capacity. However, as the business grows and the
number of employees increases, these problems become more of a concern.
The procedures a company uses to control its operations are called its system of internal
control. The objectives of this internal control system are to:
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safeguard the company's assets.
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ensure accurate accounting information.
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promote efficiency throughout the business enterprise.
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ensure that management policies are followed.
Details of specific internal control procedures will vary from one business to the next. In
all businesses, however, cash is perhaps the most important and most difficult asset to
control because it is easily stolen.
A company that does not have control of its cash cannot pay its bills, including its payroll,
and will soon go out of business. Therefore, cash should be safely controlled with a specific
set of internal controls. These controls include:
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having physically secure areas to store cash for short periods of time.
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depositing cash receipts into the bank daily.
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making all payments by cheque.
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having dual authorization signatures for payment cheques.
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maintaining a current bank account for payment cheques, to keep an accurate
record of cash transactions.
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separating the functions of handling and recording cash receipts and cash
payments.
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Lesson 14
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operating machines such as cash registers to physically secure cash and to provide
machine proofs of cash transactions.
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maintaining a petty-cash fund.
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cross-checking such records as receipts of cash with bank deposit slips and
payments of cash with cancelled cheques. These would be found in the general
journal.
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preparing monthly bank reconciliation statements.
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pre-numbering source documents.
Introduction to the Cash Journal
You will have noticed by now that journalizing and posting from the general journal is a
long, time-consuming process.
Many special journals have been designed to cut down on the amount of writing and to
speed up the posting.
In this lesson, you will learn about one very popular special journal called the cash
journal.
The cash journal is often used by small businesses to record all the transactions that
involve cash.
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Lesson 14
The Structure of a Cash Journal
The cash journal is quite different from the two-column general journal learned
previously. However, like the general journal, there is a debit and a credit side to the
journal so that an entry can be analyzed and, debited and credited accordingly. An
example of the cash journal is found below.
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The following headings are used:
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A Cash Debit column in which to record the cash receipts
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A Cash Credit column to make credits when cash is paid out
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A Date column to record the date of the transaction
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An Account Title column to tell which account should be debited or credited
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A Number column to indicate the cheque or receipt number
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A Post Reference column for cross referencing
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A General Debit column in which accounts can be debited
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A General Credit column to record credits to accounts
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A Sales (or Revenue) Credit column to record credits to the business revenue
account
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Lesson 14
Advantages of the Cash Journal
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Less space is required for recording journal entries
When journal entries were made in a two-column general journal, three lines were
needed. This type of journal only requires one line.
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Saves time in recording
The two-column journal required that two account titles be written. This journal
only requires one title and sometimes none because of the special columns.
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In some transactions, the writing of an account title is not required
If both the debit and credit amount of a transaction are recorded in special columns,
it is not necessary to write any account title. A check mark is placed in the Account
Title column to show that no account title needs to be written in this column. A
check mark is also placed in the Post. Ref. column. This means that the entry is not
posted individually.
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Saves time in posting
Every amount in a two-column journal is posted whereas the special columns in a
cash journal are posted only by total. This saves both time and labor in posting.
Comparing the General Journal and Cash Journal
Some transactions taken from Osler Golf Club's accounting records are given here.
These will be journalized in a general journal and a cash journal so that the differences in
journalizing can be clearly noted. You will assume a cash balance on hand of $1 100.
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Lesson 14
Entries
July 1, 20-- Received cash from the sale of an old lawn mower, $50.00; receipt No. 10.
July 1, 20-- Paid cash to Herb’s Supply Co. for part of the amount owed, $200.00; cheque
No. 20.
July 1, 20-- Received cash from daily sales, $250.00; cash register tape no. T1.
July 1, 20-- Paid for July rent, $600.00; cheque No. 21.
July 1, 20-- Received cash from James Taylor, owner, as an additional investment in the
business, $500.00. Receipt No. 11.
July 2, 20-- Paid cash for supplies, $50.00; cheque No. 22.
July 2, 20-- Paid cash for telephone bill, $25.00; cheque No. 23.
Accounting 10
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Lesson 14
The general journal entries follow:
DATE
20__
July 1
Post.
Ref.
Account Title
Cash
DEBIT
CREDIT
50.00
Maintenance Equipment
50.00
Receipt No. 10
1
Herb’s Supply Co.
200.00
Cash
200.00
Cheque No. 20
1
Cash
250.00
Sales
250.00
Tape No. 1
1
Rent Expense
600.00
Cash
600.00
Cheque No. 21
1
Cash
500.00
James Taylor, Capital
500.00
Receipt No. 11
2
Supplies
50.00
Cash
50.00
Cheque No. 22
2
Utilities Expense
25.00
Cash
25.00
Cheque No. 23
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Lesson 14
Journalizing in the Cash Journal
The required cash journal is found below.
Before recording the first transaction, it is common practice to record the cash balance at
the start of the period.
The date, including the year, is written in the Date column. The Balance on Hand and the
amount, $1 100, is written in the Account Title column. A check mark is placed in the
Post Ref. column.
This entry will not be posted since the amount is already in the cash account of the
general ledger. This is called a memorandum entry because it gives information which
is not posted.
Ca sh Journa l
Cash
Debit
1
2
3
4
5
6
7
8
9
Credit
Date
19__
July
5 0 00
Post.
No.
Ref.
6 0 0 00
5 0 0 00
5 0 00
2 5 00
8 7 5 00
Debit
R10
1 Herb's Supply Co.
1 ü
2 5 0 00
General
Credit
Pa ge 1
Room Sales
Credit
ü
1 Balance on hand$1 100.00
1 Maintenance Equipment
2 0 0 00
8 0 0 00
Account Title
Doc.
T1
1 Rent Expense
C21
1 James Taylor, Capital
R11
2 Supplies
C22
2 Utilities Expense
C23
31 Totals
5 0 00
C20
2 0 0 00
ü
2 5 0 00
6 0 0 00
5 0 0 00
5 0 00
2 5 00
8 7 5 00
5 5 0 00
2 5 0 00
Transaction 1
Date of entry--Write the date in the Date column.
Debit entry--Debit the cash account by writing $50.00 in the Cash Debit column on line
2. Writing Cash in the Account Title column is not necessary. The column heading, Cash
Debit, shows that all amounts are debits to the cash account.
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Lesson 14
Credit entry--Credit the maintenance equipment account by writing $50.00 in the
General Credit column. Also, write Maintenance Equipment in the Account Title
column.
The General Debit and Credit columns are used for accounts for which there are no
special columns. The account title is written for each amount recorded in a General
amount column.
Source document--Write R10 in the Doc. No. column to show that Receipt No. 10 is
issued in this transaction.
Transaction 2
Date of entry--Write the day of the month, 1, in the Date column.
Debit entry--Debit the Herb’s Supply Company account by writing $200.00 in the
General Debit column. Also, write Herb’s Supply Company in the Account Title
column.
Credit entry--Credit Cash by writing $200.00 in the Cash Credit column. The column
heading, Cash Credit, shows the account to be credited.
Source document--Write C20 in the Doc. No. column to show that Cheque No. 20 is
issued for this transaction.
Transaction 3
Date of entry--Write the day of the month, 1, in the Date column.
Debit entry--Debit the cash account by writing $250.00 in the Cash Debit column.
Credit entry--Credit the sales account by writing $250.00 in the Sales Credit column.
Writing the account title Sales is not necessary. The heading of the special column shows
clearly that the sales account is to be credited. Place a check mark in the Account Title
column to show that no account title needs to be written for this entry. A check mark is
added to the Post Reference column to indicate that no separate amounts are to be posted
from this line of the journal.
Source document--Write T1 in the Doc. No. column. T1 shows which cash register tape
is the source document for this entry.
Accounting 10
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Lesson 14
Transaction 4
Date of entry--Write the day of the month, 1, in the Date column.
Debit entry--Debit the rent expense account by writing $600.00 in the General Debit
column. Also, write Rent Expense in the Account Title column.
Credit entry--Credit the cash account by writing $600.00 in the Cash Credit column.
Source document --Write C21 in the Doc. No. column to show that Cheque No. 21 is
issued for this transaction.
Transaction 5
Date of entry--Write the day of the month, 1, in the Date column.
Debit entry--Write the debit amount, $500.00, in the Cash Debit column. The name of
an account need not be written in the Account Title column. The name of the account is
already in the amount column heading.
Credit entry--Write the credit amount, $500.00, in the General Credit column. This
amount is written in the General Credit column because there is no special amount
column for Capital Credit. Write the name of the account, James Taylor, Capital, in the
Account Title column. This account title is needed to show to which account the amount
in the General Credit column will be posted.
Source document--Write the abbreviation for the source document, R11, in the Doc. No.
column.
Transaction 6
Date of entry--Write the day of the month, 2, in the Date column.
Debit entry--Write the debit amount, $50.00, in the General Debit column. Also, write
Supplies in the Account Title column.
Credit entry--Write the credit amount, $50.00, in the Cash Credit column.
Source document--Write the abbreviation for the source document, C22, in the Doc. No.
column.
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Lesson 14
Transaction 7
Date of entry--Write the day of the month, 2, in the Date column.
Debit entry--Write the debit amount, $25.00, in the General Debit column. Also, write
Utilities Expense in the Account Title column.
Credit entry--Write the credit amount, $25.00, in the Cash Credit column.
Source document--Write C23 in the Doc. No. column
After the last transaction, on a new line put Totals and double rule the total figures from
each column heading as illustrated.
Proving the Equality of the Cash Journal
After the cash journal is totalled, the equality of debits and credits must be checked. If
the total debits equal the total credits, the journal should be ruled off with a double line at
the bottom of the columns. The proof of equality for our illustrated cash journal is given
here.
Cash Debit column
$ 800.00
General Debit column
875.00
Total Debits
$1 675.00
Cash Credit column
$ 875.00
General Credit column
550.00
Sales Credit column
250.00
Total Credits
Accounting 10
$1 675.00
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Lesson 14
Proving the Cash
Once the cash journal is complete and the equality of debits and credits is assured, the
cash on hand should be checked to see that it agrees with the bank balance. The process
of doing this is called proving the cash. The process for proving the cash for the
illustrated cash journal is given below:
Cash as shown by the memorandum entry
(Line 1 of the cash journal)
Plus cash received for the month
(cash debit total)
Total beginning balance plus cash received
Less cash payments (cash credit total)
Amount of cash on hand
$1 100.00
800.00
$1 900.00
875.00
$1 025.00
This amount should agree with the last cheque stub used in the cheque book. If the two
amounts agree, you have proved the cash. If the numbers do not agree, the error must be
found--or the correcting entry must be made to bring the two documents into balance.
Remember These Important Points
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Like a general journal, the cash journal has a debit and a credit side so that
an entry can be analyzed and debited and credited accordingly.
•
The advantages of the cash journal include: less space is required, time is
saved in recording, the writing of the account title is not required in some
entries, and time is saved in posting.
•
When the debit and credit parts of an entry are found in special columns, a
check mark is placed in the account title column to show that no account title
needs to be written for this entry. Also, a check mark is added to the Post
Reference column to indicate that no daily posting is required for that entry.
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Proving the equality of debits and credits in the cash journal and proving the
cash should be completed after every cash journal.
Accounting 10
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Lesson 14
Do You Understand?
Special journal - a journal used to record only one kind of transaction.
Cash journal - a special journal used only for cash transactions.
Special amount column - a journal amount column headed with an account title.
Receipt - a written acknowledgement given when cash is received.
Cheque - a business form ordering a bank to pay cash from a depositor's bank account.
Proving cash - determining that the amount of cash on hand agrees with the accounting
records.
Memorandum entry - an entry which gives information but it is not posted.
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Lesson 14
Self Test
The Green Acres Motel located 20 kilometers from Big River had transactions for the
last part of September as shown below.
Sept. 15
15
16
18
19
20
21
22
23
26
27
28
29
30
30
Cash on hand, $1 000.00.
Paid cash $100.00 for rent of the motel for the remainder of September
(cheque No. 1).
Received cash, $50.00 from the sale of an old desk (receipt No. 1).
Received cash, $75.00 from room sales (receipts 2 - 5).
Paid cash, $50.00 to White Co. in payment of amount owed (cheque No. 2)
Paid cash, $36.00 for laundry (cheque No. 3).
Received $25.00 from the sale of an old office chair (receipt No. 6).
Received $200.00 from room sales (receipts 7 - 17).
Paid cash, $125.00 for advertising for the motel (cheque No. 4).
Received cash, $120.00 from room sales (receipts 18 - 27).
Paid cash, $12.50 for telephone bill (cheque No. 5).
Paid cash, $24.00 for laundry (cheque No. 6).
Paid cash, $12.50 for power bill (cheque No. 7).
Received $250.00 from room sales (receipts 28 - 41).
Paid cash, $20.00 for advertising (cheque No. 8).
Instructions:
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Journalize the transactions in the 5-column cash journal provided.
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Total the respective columns.
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Prove the equality of debits and credits.
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Double rule the journal.
Accounting 10
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Lesson 14
Ca sh Journa l
Cash
Debit
Accounting 10
Credit
Date
19__
Account Title
17
Doc.
Post.
No.
Re f.
Ge ne ral
De bit
Credit
Room Sales
Credit
Lesson 14
Answers for Self Test
Ca sh Journa l
Cash
Debit
Credit
Date
19__
Sept.
1 0 0 00
Account Title
Doc.
Post.
No.
Re f.
15 Rent Expense
C1
16 Furniture & Fixtures
R1
7 5 00
18 ü
R2-5
5 0 00
ü
7 5 00
19 White Co.
C2
5 0 00
3 6 00
20 Laundry Expense
C3
3 6 00
21 Office Equipm ent
R6
22 ü
1 2 5 00
R7-17
23 Advertising Expense
26 ü
1 2 0 00
2 5 00
ü
C4
R18-27
2 0 0 00
1 2 5 00
ü
1 2 0 00
1 2 50
27 Utilities Expense
C5
1 2 50
2 4 00
28 Laundry Expense
C6
2 4 00
1 2 50
29 Utilities Expense
C7
30 ü
2 5 0 00
2 0 00
3 8 0 00
R28-41
30 Advertising Expense
Credit
1 0 0 00
5 0 00
2 0 0 00
7 2 0 00
Ge ne ral
De bit
ü
15 Balance on hand$1 000.00
5 0 00
2 5 00
P a ge 1
Room Sales
Credit
C8
30 Totals
1 2 50
ü
2 5 0 00
2 0 00
3 8 0 00
7 5 00
6 4 5 00
(3) Prove equality of debits and credits in the journal:
Cash Debit column
General Debit column
Total debits
Cash Credit column
General Credit column
Sales Credit column
Total credits
Accounting 10
$720.00
380.00
$1100.00
$380.00
75.00
645.00
$1100.00
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Lesson 14