Chapter 9 sec 4

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Only those columns needed to record cash payment transactions are included in the cash payments journal. A cash payments journal may be set up to accommodate a business's frequent cash payment transactions.

Since all cash payments affect Cash, and all cash payments are credited, a special amount column is provided for cash credit.

When a trade discount is granted, the seller's invoice shows the net price. Only the invoice amount is used in a journal entry.[CONCEPT: Historical Cost] No journal entry is made to show the amount of a trade discount.

When a company purchases goods, the purchase invoice shows the amount the company is expected to pay.

Cash discounts taken when purchasing goods are recorded to Purchases Discount. Taking cash discounts reduce the company's cost of merchandise.

All cash payments made are recorded in a cash payments journal. The source documents for most cash payments is the check issued. A few payments, such as bank service charges, are made as a direct withdrawals from the company's bank account.

Journalizing a Cash Payment of an Expense

Write the date in the date column.

Write the account title in the Account title column.

Write the check number in the Ck. no. column.

Write the debit amount to the expense in the general debit account.

Write the credit amount in the cash credit column.

Supplies are not recorded in the Purchase account because supplies are not intended for resale. Buying supplies increases the Supplies- Office account balance and decreases the Cash account balance. Although Supplies--Office is an asset account, the steps for journalizing buying supplies for cash are similar to journalizing the payment of cash for an expense.

Any check written is journalized in the cash payments journal. The amount of the check is always entered in the cash credit column. Unless a special column is provided for the debit portion of the transaction, the account description is entered in the Account Title column. The related amount is then recorded in the General Debit column.

Businesses usually purchaser merchandise on account. However, vendors may choose not to extend credit to all of their customers. Business not offered credit must pay the vendor before the merchandise is shipped or delivered.

Because the transaction involves a cash payment, it is recorded in the cash payments journal. Only purchases on account are recorded in the purchases journal.

*Only cash payment transactions are recorded in the cash payments journal.*

A cash discount is stated as a % deducted from the invoice amount. (2/10= two ten= 2% of the invoice is deducted)

Net thirty= the total invoice amount must be paid within 30 days.

Purchase discounts= contra account to Purchases

Contra accounts are deductions form related accounts so they are the opposite of their normal account balances.

Purchase invoice x Discount Rate= Cash Discount

Purchase invoice - cash discount= invoice amount

Journalizing a Cash Payment on Account with Purchases Discount

Write the date in the date column

Write the account title of the vendor in the Account title column

Write the check number in the ck. no. column

Write the debit amount to the Accounts Payable in the Accounts Payable Debit column.

Write the credit amount in the purchases discount credit column

Write the credit amount in the cash credit column

Many vendors do not offer cash discounts. Sometimes a business does not have the cash available to take advantage of a cash discount. In both cases, the full purchase invoice amount is paid.

Journalizing a Cash Payment on Account without purchases Discount

Write the date in the date column

Write the vendor account title in the account title column

Write the check number in the ck. no. column

Write the debit amount to accounts payable in the Accounts Payable Debit column.

Write the credit amount in the Cash Credit column.

*The employee responsible for signing a check should have no other purchasing functions. The vendor name and amount on the check should be compared to the requisition, purchase order and purchase invoice. This review is an important control to prevent the business from paying for unauthorized merchandise.

Petty cash short and petty cash over are recorded in an account titled Cash Short and Over. The account is a temporary account. At the end of the fiscal year, Cash Short and Over is closed to Income Summary. The balance of cash short and over can be either a debit or a credit.