3. CHAPTER EIGHTEEN THE CASH PAYMENTS JOURNAL

4. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-3 1.Record transactions in a Cash Payments journal. 2.Total, prove, and rule the Cash Payments journal. 3.Post from the Cash Payments journal. THE CASH PAYMENTS JOURNAL Objectives:

5. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-4 Setting Up a Cash Payments Journal This special journal is used to record only payments of cash.

6. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-5 Setting Up a Cash Payments Journal (continued) The Cash Payments journal has five money columns. All credits are entered in the last two money columns. The purchases discount credit column is used to record any purchases discounts taken.

7. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-6 Setting Up a Cash Payments Journal (continued) The Cash Credit column is used to record the amount of cash payment in each transaction.

8. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-7 Setting Up a Cash Payments Journal (continued) The debit section of the Cash Payments journal contains three money columns. The Accounts Payable Debit column is used to record the amounts paid to creditors on account.

9. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-8 Setting Up a Cash Payments Journal (continued) The Merchandise Purchases Debit column is used to record the amounts received from purchases.

10. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-9 Setting Up a Cash Payments Journal (continued) The last money column in the debits section -- Other Accounts -- is used to record the debit entries for cash paid to sources other than cash purchases and amounts paid to our creditors.

11. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-10 Setting Up a Cash Payments Journal (continued) The two credit columns reflect purchase discounts and cash paid out.

12. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-11 Recording Transactions in the Cash Payments Journal For cash purchases, cash is credited in the Cash credit column and purchases are debited in the Purchases Debit column. Purchase discounts are recorded in the Purchase Discount credit column.

13. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-12 Recording Transactions in the Cash Payments Journal (continued) When cash is paid for money owed a creditor, and it is after the discount period, Accounts Payable is debited and cash is credited using both special columns.

14. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-13 Recording Transactions in the Cash Payments Journal (continued) When cash is taken by the owner for personal use, the Other Accounts Credit column is used, writing in the owner’s withdrawal account, and cash is debited using the Cash credit column.

15. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-14 Advantages to using the Cash Payments Journal All entries for the payment of cash are grouped in one place. Important facts about each transaction are written on a single line.

16. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-15 Advantages to using the Cash Payments Journal (continued) There is limited need to enter account titles long explanations for each transaction.

17. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-16 Advantages to using the Cash Payments Journal (continued) The Cash Payments journal allows for the division of labor -- one person can be put in charge of entering Cash Payments. However, more than one person should be responsible to verify cash transactions.

18. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-17 Posting From the Cash Payments Journal During the month, each amount appearing in the Other Accounts Debit column of the Cash Payments journal is posted individually to the account named in the entry.

19. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-18 Posting From the Cash Payments Journal (continued) After totaling the columns, the total debits should equal the total credits. Each column total is posted to the appropriate account using the acceptable post-referencing notations.

20. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-19 Payment of Sales Tax When collected taxes are sent to the sales tax agency, the Sales Tax Payable account is debited and the Cash account is credited.

21. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-20 Accounting Terminology Cash payments journal Check stubs Checkbook Posting reference CP

22. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-21 Chapter Summary The Cash Payments journal is a special journal in which all of business’s Cash Payments transactions can be recorded in chronological order.

23. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-22 Chapter Summary (continued) The use of a Cash Payments journal makes an accounting system more efficient. The Cash Payments journal usually has several special money columns that simplify the recording of routine entries.

24. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-23 Chapter Summary (continued) The source of information for entries in the cash payments journal is usually the checkbook of a business. The totals of the debits and credits must be equal for each transaction recorded in the Cash Payments journal.

25. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-24 Chapter Summary (continued) The debits in the Other Accounts column are posted individually during the month to the general ledger accounts indicated in the journal entries. Column totals are posted at the end of the month to the appropriate accounts.

26. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-25 Chapter Summary (continued) Cross-footing is the process of checking the accuracy of column totals. A retailer who is responsible for collecting sales tax must send the sales tax to the government at regular intervals specified by the government agency.

27. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-26 Chapter Summary (continued) Businesses can adapt the Cash Payments journal form to meet their needs. There is still a need for a general journal to record transactions that cannot be recorded in the special journals.

28. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-27 Investigating on the Internet As a research assignment, access the Bluelight ® web site and report the sources of information that might concern Cash Payments.

29. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-28 1. Grouping cash payments in one place is a disadvantage for a company. 2. A general journal must still be used to record transactions that cannot be entered into special journals 3. There is one standard Cash Payments journal form that must be used, according to the IRS. Topic Quiz Answer the following true/false questions: TRUE FALSE

30. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-29 (Return to Topic Quiz) 1. Grouping cash payments in one place is a disadvantage for a company. FALSE It is an advantage. Because they are all in one place, the chances of errors are reduced.

31. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 18-30 (Return to Topic Quiz) 3. There is one standard Cash Payments journal form that must be used, according to the IRS. FALSE The Cash Payments journal can be modified to meet the needs of the business.