A cash disbursement journal is a record kept by internal accountants of all financial expenditures made by a company before they are posted to the general ledger. Cash disbursement journals serve a number of functions, such as a source for recording tax write-offs and the categorization of other expenses. This journal essentially functions as a checkbook ledger for all practical purposes.
Breaking Down a Cash Disbursement Journal
All purchases made in cash are recorded in the disbursement journal. Cash disbursement journals may record varying types of expenses by assigning each type of expense a code, or by recording the various expenses in different columns. These journals are reconciled (usually monthly) with general ledger accounts, which are then used to create financial statements for regular accounting periods. Journals are maintained in accounting software packages and will contain the following basic information: date of the disbursement, check number, transaction type, amount, payee, and memo.
Depending on the particular business, additional columns may be needed to provide important details for the disbursement entries. For example, if a company purchases supplies in bulk, it may receive a discount. A separate column for the amount of discount received would be useful. The journal manager must be very detail-oriented and on top of every transaction to keep a proper journal. It is also good practice to institute internal controls so that cash is not misdirected or misappropriated. Such internal controls could take the form of verifying large amounts disbursed or tracking payment patterns to look out for unusual activity.
Beyond its use for general ledger entries in the formal preparation of a company's books, the cash disbursement journal can provide information for owners in their cash management activities—how much went toward inventory that month, how much for wages, how much for leases and rent, how much for external services, etc. The journal becomes a good resource to guide future cash disbursement decisions.