Recording money paid out in the Cash Payments Journal

The mirror of the receipts journal

The Cash Payments Journal, written CPJ, does for money going out exactly what the CRJ does for money coming in. Every payment the business makes from its bank account is written in one book, in date order.

The effect is the mirror image. When the business pays for something, the money it controls goes down. Bank is an asset, and assets decrease on the credit side. So every line in the CPJ credits Bank. No exceptions.

Again, the interesting question is the other side: what did the business get for its money?

Two very different things you can buy

This is the idea Grade 10 turns on, so slow down here.

Some payments buy something used up now. Rent for March is gone once March ends. Wages paid to a mechanic buy work that has already been done. Electricity is consumed. These are expenses. An expense makes the owner poorer, so it reduces equity, and because equity decreases on the debit side, expenses are debited.

Some payments buy something the business keeps. A workbench, a vehicle, a computer: the business will still own these next year and they will still be useful. These are assets. The business has not become poorer, it has swapped one asset (cash) for another (equipment). Assets increase on the debit side, so the asset account is debited.

Both are debits. But they mean opposite things about how well the business is doing, and later they land in different financial statements.

CPJ columns

The CPJ has a Bank column, analysis columns for whatever the business pays for repeatedly, and a Sundry accounts column for everything else. A repair shop pays for spare parts and wages nearly every week, so those get columns. A once-off workbench does not.

Source documents on the payments side are cheque counterfoils, EFT payment confirmations, and the bank statement itself for items the bank takes automatically, such as service fees.

Worked example. Mokoena Cycle Repairs made these payments in March.

1. 2 March, EFT001, R5 500 to Limpopo Property Rentals for the month's rent. Rent for March cannot be used again. It is an expense, so Rent expense is debited R5 500 and Bank is credited. Sundry accounts column.
2. 5 March, EFT002, R3 800 to Bike Parts SA for cables, brake pads and oil. These get used up on customers' bicycles, so they are consumable stores. Consumable stores is debited. This happens often, so it gets its own analysis column.
3. 12 March, EFT003, R4 200 in wages to the mechanic. The work is already done and cannot be undone, so Wages is an expense, debited. Analysis column.
4. 20 March, EFT004, R650 for invoice books and pens. Stationery, debited. Analysis column.
5. 25 March, EFT005, R7 900 for a heavy workbench. The business will still be using this bench in five years, so it is not an expense. Equipment (an asset) is debited. Sundry accounts.
6. 30 March, EFT006, R840 for the telephone account. Used up. Telephone is debited. Sundry accounts.

Add the columns down. Bank = 5 500 + 3 800 + 4 200 + 650 + 7 900 + 840 = R22 890. Consumable stores = R3 800. Wages = R4 200. Stationery = R650. Sundry = 5 500 + 7 900 + 840 = R14 240.

Cross-check: 3 800 + 4 200 + 650 + 14 240 = 22 890. The analysis columns add across to the Bank total.

Core checkpoint: for any payment you can say that Bank is credited with the full amount, and you can decide correctly between an expense account (nothing left to show for it) and an asset account (the business still owns something). You can also say which payments deserve their own analysis column and which belong in Sundry.