Cash Disbursement Journal Entry
Cash disbursement is the process which a company makes payments to suppliers or other parties.
The company purchase variety of products and service. Some of the purchases required to pay immediately while the other purchases can be delayed. However, sooner or later the company has to use the cash to make payments.
When the company used cash to pay for purchases immediately, it will record expenses or assets on the financial statement. At the same time, the company requires to use cash to settle with suppliers. The cash balance will reduce from the company account.
The company may receive the credit term from the supplier. It allows the company to purchase on credit, the company is able to get the products and payback within an agreed period. On the due date, the company has to disburse cash to settle the credit balance with the supplier.
The company uses a cash disbursement journal as the supporting document to process payments and record them into the accounting system. Accountant will prepare the journal which is attached with purchasing document and other original documents. They will be used to get approval from management. After that, the same document will be filed in the accounting department with a stamp paid to prevent double payment.
Journal Entry for Cash Disbursement
Cash disbursement is the process of cash payment from the company. When the company makes cash disbursement, they have to record cash outflow. The other side of the recording will depend on the nature of the transaction.
When the company disburses the cash to settle for a new purchase. The company needs to recognize new assets and cash disbursement. The journal entry is debiting assets and credit cash.
The transaction will decrease the cash balance on balance sheet. At the same time, it increases the assets as well. The assets account can be inventory, fixed assets, and other assets depending on the nature of the purchase.
Moreover, the company may disburse cash to settle the liability of company. The company has to record cash out and decrease company liability. The journal entry is debiting liability and credit cash.
The transaction will decrease the company cash and decrease the liability as well. The liability can be the accounts payable, tax payable, accrued, and other long-term debt.
ABC is a trading company. During the month, accountants have made a few cash disbursements for the following transaction:
- Purchase inventory for $ 5,000
- Settle accounts payable with supplier $ 2,000
- Pay the utilities $ 500
These are the disbursement of cash on hand.
Please prepare journal entry for cash disbursement.
The first transaction, the company disbursed cash of $ 5,000 to purchase the assets which is the inventory. They have to record inventory and cash. The journal entry is debiting inventory of $ 5,000 and credit cash on hand $ 5,000.
|Cash on hand||5,000|
The second transaction, company disburses cash on hand $ 2,000 to settle the accounts payable with the supplier. They have to reduce the accounts payable as well as the cash on hand. The journal entry is debiting accounts payable $ 2,000 and credit cash on hand $ 2,000.
|Cash on hand||2,000|
The third transaction, company disburses $ 500 to pay for the utilities which is the expense on income statement. Company ahs to record utility expenses and cash out. The journal entry is debiting utility expense $ 500 and credit cash on hand $ 500.
|Cash on hand||500|