Chapter
9
Skyline College
9-1
Journal Flow Chart
Does the transaction involve cash?
YES
NO
Was cash RECEIVED?
YES
Record the
transaction in
the CASH
RECEIPTS
(CRs) Journal
Was inventory PURCHASED?
NO
YES
Record the
transaction in
the CASH
DISBURSEMENTS
(CDs) Journal
Record the
purchase in
the
PURCHASES
Journal (PJ)
Use the CRs and CDs Journals to prepare
the monthly Bank Reconcilation
9-2
NO
Was it a credit SALE?
YES
NO
Record the
Transaction
in the
SALES
Journal (SJ)
Record the
Transaction
In the
GENERAL
Journal (GJ)
The Cash Receipts Journal
A cash receipts journal is a special
journal used to record and post
transactions involving the receipt of
cash.
9-3
Cash Sales and Sales Taxes
Consider the cash sales entries for
January 8 in the cash receipts journal for
The Style Shop.
9-4
CASH RECEIPTS JOURNAL
DATE
20-Jan.
DESCRIPTION
7 Roy Anderson
8 Cash Sales
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
SALES TAX
PAYABLE
CREDIT
SALES
CREDIT
432.00
360.00
9-5
4,500.00
PAGE
1
OTHER ACCOUNTS CREDIT
ACCOUNT NAME
POST. AMOUNT
REF.
CASH
DEBIT
432.0
4,860.0
Cash Short Over
Occasionally errors occur when making change.
When errors happen, the cash in the cash register is
either more or less than the cash listed on the audit
tape.


When cash in the register is more than the audit tape,
cash is over.
When the cash in the register is less than the audit
tape, cash is short.
9-6
Cash sales with cash short.
CASH RECEIPTS JOURNAL
ATE
DESCRIPTION
7
8
11
12
13
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
R. Anderson
Cash Sales
432.00
Vicki Bowman
270.00
Investment
Barbara Coe
15 Cash Sales
SALES TAX
PAYABLE
CREDIT
212.80
SALES
CREDIT
PAGE
OTHER ACCOUNTS CREDIT
ACCOUNT NAME
POST.
AMOUNT
REF.
3,040.00
Amos, Capital
540.00
384.00 4,800.00 Cash Short/Over
1
CASH
DEBIT
432.00
4,860.00
270.00
15,000.00 15,000.00
540.00
18.00
5,166.00
$384 + $4,800 = $5,184
Debits are not the normal balance of the
Other Accounts Credit column, so the
debit entry is circled.
9-7
Cash Discounts on Sales

The Style Shop does not offer cash discounts.

However, many wholesale businesses offer cash discounts to
customers who pay within a certain time period. These are sales
discounts.

Businesses with many sales discounts add a Sales Discounts
Debit column to the cash receipts journal.
9-8
Additional Investment by the Owner
CASH RECEIPTS JOURNAL
DATE
20-Jan.
DESCRIPTION
7 R. Anderson
8 Cash Sales
11 V. Bowman
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
SALES TAX
PAYABLE
CREDIT
SALES
CREDIT
CASH
DEBIT
432.00
4,860.00
270.00
4,500.00
270.00
12 Investment
1
OTHER ACCOUNTS CREDIT
ACCOUNT NAME POST. AMOUNT
REF.
432.00
360.00
PAGE
Amos, Capital
15,000.00 15,000.00
The account name and amount
are entered in the Other
Accounts Credit section and the
debit is entered in the Cash
Debit column.
9-9
Receipt of a Cash Refund
CASH RECEIPTS JOURNAL
DESCRIPTION
Roy Anderson
Cash Sales
Vicki Bowman
Investment
Barbara Coe
Cash Sales
Alma Sanchez
Cash Refund
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
SALES TAX
PAYABLE
CREDIT
OTHER ACCOUNTS CREDIT
ACCOUNT NAME POST.
AMOUNT
REF.
SALES
CREDIT
432.00
360.00
4,500.00
270.00
Amos, Capital
540.00
384.00
PAGE
4,800.00 Cash Short/Over
108.00
CASH
DEBIT
432.00
4,860.00
270.00
15,000.00 15,000.00
540.00
18.00 5,166.00
108.00
Supplies
The name and amount are entered in the
Other Accounts Credit section. The debit is
entered in the Cash Debit column.
9-10
1
75.00
75.00
Promissory Note
A promissory note is a written promise to
pay a specified amount of money on a
certain date.
Sometimes promissory notes are used to
replace an accounts receivable balance
when the account is overdue.
9-11
On July 31 The Style Shop accepted a six-month
promissory note from Stacee Fairley, who owed
$800 on account.
$800
July 31, 20-PROMISE TO PAY
Six months
AFTER DATE I
TO THE ORDER OF
The Style Shop
Eight hundred and no/100 - - - - - - - - - - - - - - - - - - - - - - - - - - DOLLARS
-PAYABLE AT First Texas Bank
VALUE RECEIVED with interest at 9%
NO.
30
DUE
Stacee Fairley
January 31, 20--
9-12
On July 31 The Style Shop recorded a general
journal entry to increase notes receivable and to
decrease accounts receivable for $800.
The asset account, Notes Receivable, was debited.
The Accounts Receivable account was credited.
GENERAL JOURNAL
DATE
DESCRIPTION
20-July 31 Notes Receivable
Accounts Rec./Stacee Fairley
Received a 6-month, 9% note
from Stacee Fairley to replace
open account
9-13
POST.
REF.
Page
DEBIT
16
CREDIT
800
800
Amount owed (principle)
=
$800
Interest rate
=
9% per year
Time
=
six months
Interest amount $800 x 9% x 6/12
P x i x t
=
$36
Total amount with interest
($800 + $36)
=
$836
9-14
Collection of a Promissory Note and Interest
CASH RECEIPTS JOURNAL
DATE
20-Jan.
DESCRIPTION
7
8
11
12
13
15
16
17
22
22
29
31
31
31
Roy Anderson
Cash Sales
V. Bowman
Investment
Coe
Cash Sales
A. Sanchez
Cash Refund
Fred Wu
Cash Sales
Cash Sales
K. Ramirez
M. Davis
Cash Sales
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
SALES TAX
PAYABLE
CREDIT
SALES
CREDIT
PAGE
1
OTHER ACCOUNTS CREDIT
ACCOUNT NAME
POST.
AMOUNT
REF.
The note and the interest are
recorded432.00
in the
Other Accounts
212.80 4,500.00
270.00
Credit section.
M. Amos
15,000.00
535.00
384.00
4,800.00 Cash Short/Over
18.00
108.00
Supplies
75.00
400.00
400.00
216.00
5,000.00
2,700.00 Cash Short/Over
440.00
5,500.00
16.00
108.00
275.00
31 Collection of
note/S. Fairley
Notes Receivable
Interest Income
9-15
800.00
36.00
CASH
DEBIT
432.00
4,860.00
270.00
15,000.00
540.00
5,166.00
108.00
75.00
400.00
5,400.00
2,932.00
108.00
275.00
5,940.00
836.00
Posting the Cash Receipts Journal
Posting the Column Totals
At the end of the month, the cash receipts journal is
totaled and the equality of debits and credits is proved.
9-16
The column totals are posted to the general ledger.
CASH RECEIPTS JOURNAL
DATE
20-Jan.
DESCRIPTION
7
8
11
12
13
15
16
17
22
22
29
31
31
31
31
Roy Anderson
Cash Sales
V. Bowman
Investment
Coe
Cash Sales
A. Sanchez
Cash Refund
Fred Wu
Cash Sales
Cash Sales
K. Ramirez
M. Davis
Cash Sales
note/S. Fairley
31 Totals
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
SALES TAX
PAYABLE
CREDIT
SALES
CREDIT
PAGE
1
OTHER ACCOUNTS CREDIT
ACCOUNT NAME
POST.
AMOUNT
REF.
432.00
212.80
4,500.00
270.00
M. Amos
15,000.00
535.00
384.00
4,800.00 Cash Short/Over
18.00
108.00
Supplies
75.00
400.00
400.00
216.00
5,000.00
2,700.00 Cash Short/Over
440.00
5,500.00
16.00
108.00
275.00
Notes Receivable
Interest Income
2,133.00
(111)
1,800.00 22,500.00
(231)
(401)
109
491
432.00
4,860.00
270.00
15,000.00
540.00
5,166.00
108.00
75.00
400.00
5,400.00
2,932.00
108.00
275.00
5,940.00
800.00
36.00
836.00
15,909.00 42,342.00
(X)
(101)
2,133 + 1,800 + 22,500+ 15,909 = 42,342
9-17
CASH
DEBIT
The amounts in the Other Accounts Credit section are posted.
CASH RECEIPTS JOURNAL
DATE
20-Jan.
DESCRIPTION
7
8
11
12
13
15
16
17
22
22
29
31
31
31
31
Roy Anderson
Cash Sales
V. Bowman
Investment
Coe
Cash Sales
A. Sanchez
Cash Refund
Fred Wu
Cash Sales
Cash Sales
K. Ramirez
M. Davis
Cash Sales
note/S. Fairley
31 Totals
POST.
REF.
ACCOUNTS
RECEIVABLE
CREDIT
SALES TAX
PAYABLE
CREDIT
SALES
CREDIT
PAGE
1
OTHER ACCOUNTS CREDIT
ACCOUNT NAME
POST.
AMOUNT
REF.
432.00
212.80
4,500.00
The (X) indicates that
the individual 15,000.00
M. Amos
535.00
amounts
are
posted, and not the total.18.00
384.00 4,800.00 Cash Short/Over
270.00
108.00
Supplies
75.00
400.00
400.00
216.00
5,000.00
2,700.00 Cash Short/Over
440.00
5,500.00
16.00
108.00
275.00
Notes Receivable
Interest Income
2,133.00
(111)
1,800.00 22,500.00
(231)
(401)
9-18
109
491
CASH
DEBIT
432.00
4,860.00
270.00
15,000.00
540.00
5,166.00
108.00
75.00
400.00
5,400.00
2,932.00
108.00
275.00
5,940.00
800.00
36.00
836.00
15,909.00 42,342.00
(X)
(101)
Posting to the Accounts
Receivable Ledger
Post entries from the Accounts Receivable Credit
column to the customers’ accounts in the accounts
receivable subsidiary ledger daily.
On January 7, $432 was posted to Roy
Anderson’s account in the accounts receivable
subsidiary ledger.
9-19
CASH RECEIPTS JOURNAL
PAGE
1
SALES
DATE DESCRIPTION POST. ACCOUNTS
TAX
SALES
OTHER ACCOUNTS CREDIT CASH
REF. RECEIVABLE PAYABLE CREDIT ACCOUNT TITLE POST. AMT. DEBIT
CREDIT
CREDIT
REF.
20-Jan. 7 R. Anderson

432 .00
432.00
The “CR1” indicates that the transaction appears
on page 1 of the cash receipts journal.
Name
Address
Roy Anderson
8913 S. Hampton Rd, Dallas, Texas 75232-6002
DATE
DESCRIPTION
20-Jan. 1 Balance
3 Sales Slip 1101
7
31 Sales Slip 1110
POST.
REF.
DEBIT
Terms
CREDIT

S1
CR1
S1 9-20
432.00
432.00
267.50
n/30
BALANCE
432.00
864.00
432.00
699.50
Advantages of the Cash Receipts Journal
The cash receipts journal:

Saves time and effort when recording and posting
cash receipts

Allows for the division of work among the
accounting staff

Strengthens the audit trail by recording all cash
receipts transactions in one place
9-21
The Cash Payments Journal
A cash payments journal is a special
journal used to record transactions
involving the payment of cash.
9-22
Journal Flow Chart
Does the transaction involve cash?
YES
NO
Was cash RECEIVED?
YES
Record the
transaction in
the CASH
RECEIPTS
(CRs) Journal
Was inventory PURCHASED?
NO
YES
Record the
transaction in
the CASH
DISBURSEMENTS
(CDs) Journal
Record the
purchase in
the
PURCHASES
Journal (PJ)
Use the CRs and CDs Journals to prepare
the monthly Bank Reconcilation
9-23
NO
Was it a credit SALE?
YES
NO
Record the
Transaction
in the
SALES
Journal (SJ)
Record the
Transaction
In the
GENERAL
Journal (GJ)
Payments for Expenses
Businesses write checks for a variety of expenses
each month.
In January The Style Shop issued checks for rent,
electricity, telephone service, advertising, and
salaries.
Consider the January 3 entry for rent expense.
9-24
CASH PAYMENTS JOURNAL
DATE
CK.
NO.
DESCRIPTION
20-Jan. 3 111 January rent
POST.
REF.
ACCOUNTS
PAYABLE
DEBIT
PAGE
1
OTHER ACCOUNTS DEBIT
PURCHASES CASH
ACCOUNT NAME POST. AMOUNT
DISCOUNT CREDIT
REF.
CREDIT
Rent Expense
The account name and amount are
entered in the Other Accounts Debit
section.
The credit is entered in the
Cash Credit column.
9-25
1500
1500
Payments on Account
Merchandising businesses usually make
numerous payments on account for goods that
were purchased on credit.
Consider the January 27 entry for International
Apparel Mart.
9-26
CASH PAYMENTS JOURNAL
DATE
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
CK.
NO.
111
112
113
114
115
116
117
118
119
120
121
DESCRIPTION
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
27 122 International Apparel Mart
POST.
REF.



ACCOUNTS
PAYABLE
DEBIT
PAGE
1
OTHER ACCOUNTS DEBIT
PURCHASES CASH
ACCOUNT NAME POST. AMOUNT
DISCOUNT CREDIT
REF.
CREDIT
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
231
1500.00
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
Telephone Exp.
Advertising Exp.
649
614
276.00
840.00
3935.00
2865.00
4250.00
2400.00
If there is no cash discount, the entry in
the cash payments journal is a debit to
Accounts Payable and a credit to Cash.
9-27
1500.00
2400.00
756.00
3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00
Purchases Discounts
Purchases Discounts is a contra cost of
goods sold account.
For an example of a payment with a discount,
refer to the January 13 entry for Fashion
Designs.
9-28
CASH PAYMENTS JOURNAL
DATE
20-Jan. 3
10
11
11
13
CK.
NO.
111
112
113
114
115
DESCRIPTION
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Debit Accounts
Payable for the
invoice amount,
$2865
POST.
REF.
ACCOUNTS
PAYABLE
DEBIT
OTHER ACCOUNTS DEBIT
ACCOUNT NAME POST. AMOUNT
REF.
Rent Expense
Store Equip.
Sales Tax Pay.


PAGE
634
131
231
1500.00
2400.00
756.00
3935.00
2865.00
1
PURCHASES CASH
DISCOUNT CREDIT
CREDIT
1500.00
2400.00
749.00
78.7 3856.30
57.30 2807.70
Credit Purchases Discounts
for the amount of the
discount, $57.30.
Credit Cash for the amount
of cash paid, $2807.70.
9-29
Cash Purchases of Equipment
and Supplies
Businesses use cash to purchase equipment
and other assets.
On January 10 The Style Shop issued a check
for store fixtures.
9-30
CASH PAYMENTS JOURNAL
DATE
CK.
NO.
DESCRIPTION
20-Jan. 3 111 January rent
10 112 Store fixtures
POST.
REF.
ACCOUNTS
PAYABLE
DEBIT
PAGE
1
OTHER ACCOUNTS DEBIT
PURCHASES CASH
ACCOUNT NAME POST. AMOUNT
DISCOUNT CREDIT
REF.
CREDIT
Rent Expense
634
Store Equip.
1400.00
1400.00
2400.00
2400.00
The account name and amount appear
in the Other Accounts Debit section.
The credit is recorded in the
Cash Credit column.
9-31
Payment of Taxes
Retail businesses collect sales tax from their
customers. Periodically the sales tax is
remitted to the taxing authority.
Consider the entry on January 11.
9-32
The Style Shop issued a check for $749 to pay the December sales tax.
CASH PAYMENTS JOURNAL
DATE
CK.
NO.
DESCRIPTION
20-Jan. 3 111 January rent
10 112 Store fixtures
11 113 Tax remittance
POST.
REF.
ACCOUNTS
PAYABLE
DEBIT
PAGE
OTHER ACCOUNTS DEBIT
ACCOUNT NAME POST. AMOUNT
REF.
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
1400.00
1200.00
1400.00
1200.00
756.00
756.00
Notice that the account name and
amount appear in the Other Accounts
Debit section.
The credit is entered in
the Cash Credit column.
9-33
1
PURCHASES CASH
DISCOUNT CREDIT
CREDIT
Cash Purchases of Merchandise
Although most merchandising businesses buy
their goods on credit, occasionally purchases
are made for cash.
Consider the January 31 entry for the purchase
of goods.
9-34
CASH PAYMENTS JOURNAL
DATE
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
27
30
31
31
CK.
NO.
DESCRIPTION
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
International Apparel Mart
Fashion Designs
World of Fashions
January payroll
31 126 Purchase of goods
POST.
REF.






ACCOUNTS
PAYABLE
DEBIT
PAGE
OTHER ACCOUNTS DEBIT
ACCOUNT NAME POST. AMOUNT
REF.
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
231
1500.00
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
Telephone Exp.
Advertising Exp.
649
614
276.00
840.00
Salaries Exp.
637
4950.00
3935.00
2865.00
4250.00
2400.00
1135.00
565.00
Purchases
Cash purchases are recorded
in the cash payments journal.
9-35
3200.00
1
PURCHASES CASH
DISCOUNT CREDIT
CREDIT
1500.00
2400.00
756.00
78.70 3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00
1135.00
565.00
4950.00
3200.00
DATE
CK.
NO.
DESCRIPTION
POST.
REF.
ACCOUNTS
PAYABLE DEBIT
OTHER ACCOUNTS DEBIT
ACCOUNT NAME
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
27
111
112
113
114
115
116
117
118
119
120
121
122
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
International Apparel Mart



POST.
REF.
AMOUNT
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
231
1500.00
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
Telephone Exp.
Advertising Exp.
649
614
276.00
840.00
3935.00
2865.00
4250.00
2400.00
PURCHASES
DISCOUNT
CREDIT
CASH
CREDIT
1500.00
2400.00
756.00
78.7 3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00

30 123 Fashion Designs
31 124 World of Fashions
31 125 January payroll


1135.00
565.00 Freight In
Salaries Exp.
637
175.00
4950.00
Payment of “freight-in” and amount appear in
the Other Accounts Debit section.
The credit is in the Cash Credit column.
9-36
1135.00
565.00
175.00
4950.00
Cash Payments Journal
OTHER ACCOUNTS DEBIT
DATE
CK.
NO.
DESCRIPTION
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
27
111
112
113
114
115
116
117
118
119
120
121
122
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
International Apparel Mart
POST. REF.



ACCOUNTS
PAYABLE DEBIT
ACCOUNT NAME
POST.
REF.
AMOUNT
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
231
1500.00
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
Telephone Exp.
Advertising Exp.
649
614
276.00
840.00
3935.00
2865.00
4250.00
The Style Shop issued a2400.00
check for $172.80 to a

customer
who
returned
a defective item.
30 123 Fashion Designs

1135.00
31 124 World of Fashions
31 125 January payroll
31 128 Cash refund

Sales Ret. & Allow.
Sales Tax Payable
9-37
637
CASH
CREDIT
1500.00
2400.00
756.00
78.7 3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00
4950.00
1135.00
565.00
4950.00
160.00
12.80
172.80
565.00
Salaries Exp.
PURCHASES
DISCOUNT
CREDIT
Payment of a Promissory
Note and Interest
A promissory note can be issued to settle
an overdue account or to obtain goods,
equipment, or other property.
9-38
On August 2, The Style Shop issued a six-month
promissory note for $6,000 to purchase store fixtures
from Metroplex Equipment Company.
The note had an interest rate of 10 percent.
GENERAL JOURNAL
DATE
DESCRIPTION
POST.
REF.
20-Aug. 2 Store Equipment
Notes Payable
Issued a 6-month, 10% note
to Metroplex Equipment Company
for purchase of new store fixtures
9-39
131
201
Page
DEBIT
16
CREDIT
6,000
6,000
On January 31 The Style Shop issued a
check for $6,300 in payment of the note
($6,000) and the interest ($300).
P
x
i
x
t = interest
$6,000 x 10% x 6/12 = $300
9-40
Cash Payments Journal
OTHER ACCOUNTS DEBIT
DATE
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
27
CK.NO.
111
112
113
114
115
116
117
118
119
120
121
122
DESCRIPTION
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
International Apparel Mart
POST.
ACCOUNTS
REF.
PAYABLE DEBIT



ACCOUNT NAME
POST.
AMOUNT
REF.
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
231
1500.00
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
Telephone Exp.
Advertising Exp.
649
614
276.00
840.00
PURCHASES
DISCOUNT
CREDIT
3935.00
2865.00
4250.00
Debit Notes
Payable for $6,000
2400.00
CASH
CREDIT
1500.00
2400.00
756.00
78.7 3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00

30
31
31
31
123 Fashion Designs
124 World of Fashions
125 January payroll
128 Cash refund

1135.00
Debit Interest
Expense
for $300

565.00
31
129 Note paid to Metroplex
Equipment Company
Salaries Exp.
Sales Ret. & Allow.
Sales Tax Payable
Notes Payable
Interest Exp.
637
4950.00
160.00
12.80
6000.00
300.00
Credit Cash for $6,300
9-41
1135.00
565.00
4950.00
172.80
6300.00
Posting from the Cash Payments Journal
During the month, the amounts recorded in the
Accounts Payable Debit column are posted to
the individual accounts in the accounts
payable subsidiary ledger.
The amounts in the Other Accounts Debit
column are also posted individually to the
general ledger accounts during the month.
Consider the January 3 entry in the cash payments
journal that was posted to Rent Expense account.
9-42
CASH PAYMENTS JOURNAL
PAGE
1
ACCOUNTS
PURCH.
DATE CK. EXPLANATION POST. PAYABLE
OTHER ACCOUNTS DEBIT
DISCOUNT CASH
NO.
REF. DEBIT
ACCOUNT TITLE POST. AMOUNT CREDIT CREDIT
REF.
20-Jan. 3 111 January rent
Rent Expense
634
1500
1500
ACCOUNT
DATE
20-Jan.
Rent Expense
DESCRIPTION
3
ACCOUNT NO.
POST.
REF.
DEBIT
CP1
1500
CREDIT
BALANCE
DEBIT
CREDIT
1500
The “CP1” indicates that the entry is recorded on page
1 of the cash payments journal.
9-43
634
Posting to the Accounts
Payable Ledger
Post entries from the Accounts Payable Debit
column of the cash payments journal to the
vendor accounts in the accounts payable
subsidiary ledger daily.
On January 13, $2,865 was posted to Fashion
Designs account in the subsidiary ledger.
9-44
CASH PAYMENTS JOURNAL
DATE
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
27
30
31
31
31
31
31
CK.
NO.
DESCRIPTION
POST.
REF.
ACCOUNTS
PAYABLE
DEBIT
OTHER ACCOUNTS DEBIT
ACCOUNT NAME POST. AMOUNT
REF.
1
PURCHASES CASH
DISCOUNT CREDIT
CREDIT
The amount of $2,865 was posted to Fashion
111 JanuaryDesigns
rent
Rent subsidiary
Expense
634ledger.
1500.00
account in the
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
Intl. Apparel Mart
Fashion Designs
World of Fashions
January payroll
Purchase of goods
Freight charge
Cash refund






Store Equip.
Sales Tax Pay.
131
231
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
Telephone Exp.
Advertising Exp.
649
614
276.00
840.00
3935.00
2865.00
4250.00
2400.00
1135.00
565.00
Name Fashion Designs
Salaries Exp.
Purchases
Address 2313 Belt Lane, Dallas, Texas, 75267-6205
Freight In
DATE
DESCRIPTION
31 129 Note paid to Metroplex
Equipment Company
31 130 Establish petty cash fund
31
Totals
20-Jan.
PAGE
1 Balance
3 Invoice 5819,12/29/-13
30
Sales Ret. & Allow.
POST.
REF.

P1
CP1
CP1
DEBIT
Sales Tax Payable
Notes Payable
Interest Exp.
Petty Cash Fund
15,150.00
(205)
9-45
Terms
2/10, n/30
637
4950.00
501
502
451
3200.00
175.00
160.00
CREDIT
12.80
BALANCE
172.80
6000.00
300.00
175.00
24,962.80
(X)
6300.00
175.00
136.00 #######
(504)
(101)
231
201
691
105
2865
2,865
1,135
1500.00
2400.00
756.00
3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00
1135.00
51.20 565.00
4950.00
3200.00
175.00
2,200
5,065
Page
2,200
1,065
303
Advantages of the Cash
Payments Journal
The cash payments journal:

Saves time and effort when recording and posting cash
payments

Allows for a division of labor among the accounting staff

Improves the audit trail because all cash payments are
recorded in one place and listed by check number
9-46
The Petty Cash Fund
Most businesses use a petty cash fund to
pay for small expenditures
The amount of the petty cash fund depends
on the needs of the business.
Usually the office manager, cashier, or
assistant is in charge of the petty cash fund.
9-47
Establishing the Fund
The Style Shop’s cashier is responsible for
petty cash. The Style Shop wrote a $175
check to the cashier, who cashed the check
and put the currency in a locked cash box.
9-48
CASH PAYMENTS JOURNAL
DATE
20-Jan. 3
10
11
11
13
14
15
17
17
21
25
27
30
31
31
31
31
31
CK.
NO.
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
DESCRIPTION
January rent
Store fixtures
Tax remittance
World of Fashions
Fashion Designs
Store supplies
Withdrawal
Electric bill
The Trend Center
Telephone bill
Newspaper ad
Intl. Apparel Mart
Fashion Designs
World of Fashions
January payroll
Purchase of goods
Freight charge
Cash refund
POST.
REF.



ACCOUNTS
PAYABLE
DEBIT
PAGE
OTHER ACCOUNTS DEBIT
ACCOUNT NAME POST. AMOUNT
REF.
Rent Expense
Store Equip.
Sales Tax Pay.
634
131
231
1500.00
2400.00
756.00
Supplies
M. Amos, Drawing
Utilities Exp.
129
302
643
900.00
3000.00
318.00
1
PURCHASES CASH
DISCOUNT CREDIT
CREDIT
3935.00
2865.00
4250.00
Exp.
649
276.00
Debit Petty Cash FundTelephone
in
the
other
Accounts
Advertising Exp.
614
840.00

2400.00
Debit section
and
enter the credit in the Cash

1135.00

565.00
Credit column.
Salaries Exp.
637
4950.00
31 129 Note paid to Metroplex
Equipment Company
31 130 Establish petty cash fund
31
Totals
Purchases
Freight In
Sales Ret. & Allow.
501
502
451
3200.00
175.00
160.00
Sales Tax Payable
Notes Payable
Interest Exp.
Petty Cash Fund
231
201
691
105
12.80
6000.00
300.00
175.00
24,962.80
(X)
15,150.00
(205)
9-49
1500.00
2400.00
756.00
3856.30
57.30 2807.70
900.00
3000.00
318.00
4250.00
276.00
840.00
2400.00
1135.00
51.20 565.00
4950.00
3200.00
175.00
172.80
6300.00
175.00
136.00 39,976.80
(504)
(101)
Petty Cash Voucher
A petty cash voucher is a form used to
record the payments made from a petty
cash fund.
The person receiving the funds signs the
voucher.
The person who controls the petty cash
fund initials the voucher.
9-50
A petty cash voucher shows:
PETTY CASH VOUCHER 1
NOTE: This form must be computer processed or filled out in black ink.
DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED
Office Supplies
Supplies 129
Total
RECEIVED
THE SUM OF Sixteen
SIGNED
16 25
DOLLARS AND
L.T. Green DATE 2/3/-- APPROVED BY M.A.
Metroplex Office Supply Co.
9-51
AMOUNT
16 25
25/100 CENTS
DATE
2/3/--
Replenishing the Fund
The total vouchers plus the cash on hand
should always equal the amount of the fund–
$175 for The Style Shop.
Replenish the petty cash fund at the end of
each month or sooner if the fund is low.
The fund MUST be replenished at the end of
the period.
9-52
The following internal control
procedures apply to petty cash:
1. Use the petty cash fund only for small payments that cannot
conveniently be made by check.
2. Limit the amount set aside for petty cash to the approximate
amount needed to cover one month's payments from the
fund.
3. Write petty cash fund checks to the person in charge of the
fund, not to the order of "Cash."
9-53
The following internal control
procedures apply to petty cash:
4.
Assign one person to control the petty cash fund. This person has
sole control of the money and is the only one authorized to make
payments from the fund.
5.
Keep petty cash in a safe, a locked cash box, or a locked
drawer.
6.
Obtain a petty cash voucher for each payment. The
voucher should be signed by the person who receives the
money and should show the payment details. This
provides an audit trail for the fund.
9-54
Internal Control over Cash
The internal control over cash should be
tailored to the needs of a business.
Accountants play a vital role in designing,
establishing, and monitoring the cash control
system.
9-55
Essential Cash Receipt Controls
1.
Have only designated employees receive and
handle cash. In some businesses employees
handling cash are bonded.
Bonding is the process by which will insure the
business against losses through employee theft or
mishandling of funds.
9-56
Essential Cash Receipt Controls
2.
Keep cash receipts in a cash register, a locked
cash drawer, or a safe while they are on the
premises.
3.
Make a record of all cash receipts as the funds
come into the business.
4.
Check the funds to be deposited against the
record made when the cash was received. The
employee who checks the deposit is someone
other than the one who receives or records the
cash.
9-57
Essential Cash Receipt Controls
5.
Deposit cash receipts in the bank promptly.
Deposit the funds intact. The person who makes
the bank deposit is someone other than the one
who receives and records the funds.
6.
Enter cash receipt transactions in the accounting
records promptly. The person who records cash
receipts is not the one who receives or deposits
the funds.
7.
Have the monthly bank statement sent to and
reconciled by someone other than the employees
who handle, record, and deposit the funds.
9-58
Essential Cash Payment Controls
1.
Make all payments by check except for payments from
special purpose cash funds such as a petty cash fund.
2.
Issue checks only with an approved bill, invoice, or other
document that describes the reason for the payment.
3.
Have only designated personnel approve bills and
invoices.
4.
Have checks prepared and recorded in the checkbook or
check register by someone other than the person who
approves the payments.
9-59
Essential Cash Payment Controls
5.
Have still another person sign and mail the checks to
creditors.
6.
Use prenumbered check forms.
7.
During the bank reconciliation process, compare the canceled
checks to the checkbook or check register. The person
responsible for this should be someone other than the person
who prepares or records the checks.
8.
Enter promptly in the accounting records all cash payment
transactions. The person who records cash payments should
not be the one who approves payments or the one who writes
the checks.
9-60
Bank Statement
First Texas National Bank
The Style Shop
Dallas, TX 75268
12,025.50
9-61
Bank Reconciliation Statement
A bank reconciliation statement is a
statement that accounts for all differences
between the balance on the bank statement
and the book balance of cash.
9-62
A credit memorandum is a form that
explains any addition, other than a
deposit, to a checking account.
A debit memorandum is a form that
explains any deduction, other than a
check, from a checking account.
9-63
A dishonored check is a check
returned to the depositor unpaid
because of insufficient funds in the
drawer’s account. It is also called an
NSF check.
A service charge is a fee charged by
a bank to cover the costs of
maintaining accounts and providing
services.
9-64
The Bank Reconciliation Process:
An Illustration
When the bank statement is received, it is
reconciled with the financial records of the
business.
The ending bank balance on January 31 was
$21,838.50.
On January 31 the Cash account, called the
book balance of cash, is $14,390.70.
9-65
Bank Statement
First Dallas National Bank
The Style Shop
38-19-98867
Dallas, TX 75268
12,025.50
The ending cash balance
according to the bank is
$21,838.50.
21,838.50
9-66
Sometimes the difference between the bank
balance and the book balance is due to errors.
Errors made by banks
Errors made by businesses
Arithmetic errors
Arithmetic errors
Giving credit to the wrong
depositor
Not recording a check or
deposit
Charging a check against
the wrong account
Recording a check or
deposit for the wrong amount
Many banks require that errors in the bank statement be
reported within a short period of time, usually 10 days.
9-67
Other than errors, there are four reasons why the book
balance of cash may not agree with the balance on the
bank statement.
1. Outstanding checks.
2. Deposit in transit.
3. Service charges and other deductions not recorded in
the business records.
4. Deposits, such as the collection of promissory notes,
not recorded in the business records.
9-68
A deposit in transit is a deposit that
is recorded in the cash receipts
journal but that reaches the bank
too late to be shown on the monthly
bank statement.
Outstanding checks are checks that
have been recorded in the cash
payments journal but have not yet
been paid by the bank.
9-69
Format of a bank reconciliation statement
First Section
Bank statement balance
Second Section
=
Book balance
+
deposits in transit
+
deposits not recorded
–
outstanding checks
–
deductions
+ or –
+ or –
bank errors
Adjusted bank balance
=
9-70
errors in books
Adjusted book balance
Steps to reconcile bank balance:
First Section
1.
Enter the bank balance on the bank statement.
2.
Compare the deposits in the checkbook with the deposits
on the bank statement.
3.
List the outstanding checks.
4.
List any bank errors.
5.
Compute the adjusted bank balance.
9-71
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
21,838.50
Step 1: Enter the balance on the bank statement, $21,838.50
9-72
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
5,940
Step 2: Compare the deposits in the checkbook with the deposits on
the bank statement.
On January 31 receipts of $5,940 were placed in the bank's night
deposit box.
The bank recorded the deposit on February 1. The
deposit will appear on the February bank statement.
9-73
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Deductions for outstanding checks:
Check 124 of January 31
Check 125 of January 31
Check 126 of January 31
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
Total outstanding checks
5,940
565
4,950
3,200
175
172.80
6,300
175
15,537.80
Step 3: List the outstanding checks. The Style Shop has seven
outstanding checks totaling $15,537.80.
9-74
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
5,940
1,600
Deductions for outstanding checks:
Check 124 of January 31
Check 125 of January 31
Check 126 of January 31
Check 127 of January 31
Check 128 of January 31
129any
of January
Step Check
4: List
bank31errors.
Check 130 of January 31
Total outstanding checks
565
4,950
3,200
175
172.80
6,300
175
7,540
29,378.50
15,537.80
A $1,600 check was incorrectly deducted from The
Style Shop’s account.
9-75
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
Deductions for outstanding checks:
Check 124 of January 31
Check 125 of January 31
Check 126 of January 31
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
Total outstanding checks
Adjusted bank balance
5,940
1,600
7,540
29,378.50
565
4,950
3,200
175
172.80
6,300
175
15,537.80
13,840.70
Step 5: Compute the adjusted bank balance.
9-76
Steps to reconcile book balance:
Second Section
1.
Enter the balance in books from the Cash account.
2.
Record any deposits made by the bank that have not been
recorded in the accounting records.
3.
Record deductions made by the bank.
4.
Record any errors in the accounting records that were discovered
during the reconciliation process.
5.
Compute the adjusted book balance.
9-77
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
Step 1:
Deductions for outstanding checks:
Check 124 of January 31
Check 125 of January 31
Check 126 of January 31
Check 127 of January 31
128 of January
31
EnterCheck
the balance
in books
from
Check 129 of January 31
Check 130 of January 31
Total outstanding checks
Adjusted bank balance
5,940
1,600
7,540
29,378.50
565
4,950
3,200
175
the172.80
Cash account,
6,300
175
15,537.80
13,840.70
14,390.70
Book balance
9-78
$14,390.70.
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
Deductions for outstanding checks:
Check 124 of January 31
Step 2: Record any
deposits
made
by
Check
125 of January
31
Check 126 of January
31
recorded in the accounting
records.
Check 127 of January 31
Checknot
128 ofhave
Januaryany.
31
The Style Shop did
Check 129 of January 31
Check 130 of January 31
Total outstanding checks
Adjusted bank balance
5,940
1,600
7,540
29,378.50
565
the bank
4,950 that have
3,200
175
172.80
6,300
175
15,537.80
13,840.70
14,390.70
Book balance
9-79
not been
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
Deductions for outstanding checks:
Check 124 of January
31
Step 3: Record deductions
made
by
Check 125 of January 31
Check
of January 31
 The NSF check
for126
$525
Check 127 of January 31
Checkcharge
128 of January
 The bank service
for31$25
Check 129 of January 31
Check 130 of January 31
Total outstanding checks
Adjusted bank balance
5,940
1,600
7,540
29,378.50
565 There are two items:
the bank.
4,950
3,200
175
172.80
6,300
175
15,537.80
13,840.70
14,390.70
Book balance
Deductions:
NSF Check
Bank service charge
525
25
9-80
550
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
5,940
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Step 4: Record any
in the
Checkerrors
125 of January
31 accounting
4,950records
Check
126 reconciliation
of January 31
3,200
discovered during
the
process.
Check 127 of January 31
175
Checknot
128 ofhave
Januaryany
31 errors in
172.80
The Style Shop did
January.
Check 129 of January 31
6,300
Check 130 of January 31
175
Total outstanding checks
15,537.80
Adjusted bank balance
13,840.70
14,390.70
Book balance
Deductions:
NSF Check
Bank service charge
525
25
9-81
550
that were
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
Step
Deductions for outstanding checks:
Check 124 of January 31
Check 125 of January 31
Check 126 of January 31
Check 127 of January 31
5: Compute
the adjusted
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
Total outstanding checks
Adjusted bank balance
5,940
1,600
7,540
29,378.50
565
4,950
3,200
175
book
balance.
172.80
6,300
175
15,537.80
13,840.70
14,390.70
Book balance
Deductions:
NSF Check
Bank service charge
Adjusted book balance
525
25
9-82
550
13,840.70
The
Trend
The
StyleCenter
Shop
Bank Reconciliation Statement
January 31, 20-Bank statement balance
Additions:
21,838.50
Deposit of January 31 in transit
Check incorrectly charged to account
5,940
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
127 of January
31 balance and
175the adjusted
Notice that theCheck
adjusted
bank
172.80
balance agree.Check 128 of January 31
Check 129 of January 31
6,300
Check 130 of January 31
175
Total outstanding checks
15,537.80
Adjusted bank balance
13,840.70
14,390.70
Book balance
Deductions:
NSF Check
Bank service charge
Adjusted book balance
525
25
9-83
550
13,840.70
book
For The Style Shop, two entries must be made.
GENERAL JOURNAL
DATE
DESCRIPTION
POST.
REF.
Jan 31
Accts. Rec./David Newhouse
Bank Fees Expense
Cash
To record NSF check and service charge
PAGE
DEBIT
CREDIT
525
25

The first entry is for the NSF check from David Newhouse, a
credit customer.

The second entry is for the bank service charge.
The effect of the two items is a decrease in the Cash account
balance.
9-84
16
550