What Is a Cash Disbursement in Accounting?
Cash disbursement, or cash payment, is any money an organization spends in accounting processes. Disbursements may take the form of cash, debit cards, checks or electronic funds transfers. This includes money for payments on invoices, petty cash, salaries or loan repayments. Accountants keep records of expenditure in cash disbursement journals, and in this way, the companies track their spending. They then use the information in these journals to prepare balance sheets and other financial statements and reports.
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Cash Disbursement Journals
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In accounting, disbursement journals include purchases, cash disbursements and payroll. Accountants list all credit purchases in purchases journals, and list transactions that reduce cash in cash disbursement journals. The most commonly used columns in the cash disbursement journal are the accounts payable, merchandising purchases, withdrawal and payroll gross. Payroll, however, typically has its own sub-journal to record details of each employee’s salary. At the end of each accounting period, the accountant transfers totals from the various journals to general ledger accounts.
Cash Control
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Companies typically set up internal control of cash control systems that ensure appropriate cash disbursements. For example, to maintain internal control of finances, companies may designate a team so that there is accountability. On that team, one person authorizes payments, another two sign checks and yet another reviews disbursements and cancelled checks. Making certain that all financial transactions have supporting documents, such as receipts and invoices, ensures that the transactions are legitimate and further assures cash control. Effective cash control systems must also have appropriate bank reconciliation processes and petty cash management.
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Journalizing Cash Payments
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Journalizing cash disbursements is a crucial step in managing cash flow. Through your journal reports, you can avoid making payments that outweigh your income, and keep on top of your payments. Suppliers and providers may lose confidence and trust if you are unable to meet your financial obligations. You can also use your journal reports to observe financial trends, which can help you take proactive steps in your spending habits. These reports can also help you determine your sales strategies because they detail information such as a repeat customer's habits and top-selling products.
Disbursement Records
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For record purposes, it is not enough to record the amount of disbursement; you must include all relevant elements of each disbursement. The record should include at least the amount, the date of the transaction and the payment reason. You can use commercial accounting software or create your own disbursement journals. Commercial accounting applications such as QuickBooks and Peachtree create your disbursement journals as you record your spending transactions. You can manually create your own disbursement journal. Simply keep track of your spending either in a disbursement journal that you buy at your local store or in a spreadsheet application.
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