In which journal would a customer cash payment on account be recorded?
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Accountants refer to a “journal” as “the book of original entry.” Traditionally, when a transaction occurs, it is recorded first in the general journal. Then it’s copied, as appropriate, to a series of special purpose journals that keep track of related categories of transactions such as cash disbursements, sales, purchases, and
payroll. The totals from the different journals get copied into the company’s general ledger under account headings such as accounts receivable, accounts payable, equipment costs, depreciation, etc. Now you understand why a company’s records are referred to in the plural – the books – because there really is a series of physical journals and a ledger that contain the essential financial information. At least that’s how it was done prior to the computer revolution. Now, business accounting
software is set up so that a single entry, for example in your checkbook, also gets categorized so that it will be included in reports that mimic the different journals or the accounts in the general ledger. Here’s a basic description of the different journals: Cash Disbursement Journal. As mentioned above, the cash disbursement journal can be as simple as a checkbook register. Accounting software allows you to add supplemental information such as expense
categories and job numbers. Traditional bookkeepers use special 13-column paper to record this data. Cash Receipts Journal. The cash receipts journal is the counterpart to the cash disbursement journal. It is where you record payments received by cash or check. Purchase Journal. The purchase journal differs from the cash disbursement journal because it captures information about expenses that are purchased on credit. For example, suppliers
may allow you to purchase goods on account for resale to your customers. This journal can record merchandise you return to the supplier or price adjustments that you receive. Sales Journal. The sales journal is the income counterpart to the purchase journal. It is where you record sales paid for with credit. Payroll Journal. The payroll journal captures all of the information that appears on each employee’s check stub: gross wages, payroll taxes for Social Security and Medicare, accrued vacation and sick leave, and benefits deductions for retirement plans and health insurance. What Is On Account?"On account" is an accounting term that denotes partial payment of an amount owed. On account is also used to denote the purchase/sale of goods or services on credit. On account can also be referred to as “on credit.” Key Takeaways
How On Account WorksOn account can refer to purchases on account, but there are also other ways to use this notation. Purchases On AccountWhen a customer or business makes a purchase on credit, a general ledger account known as accounts payable is created or the current one is increased. Accounts payable refers to the short-term debt that a company owes another entity during conducting business operations.As the company purchases more goods on credit, this account will increase. The account will decrease as the company pays off its outstanding bills. Any purchases made with credit can be referred to as “purchased on account.” A business that owes another entity for goods or services rendered will record the total amount as a credit entry to increase accounts payable. The outstanding balance remains until cash is paid, in full, to the entity owed. When payment is made against an account, such that the entry in the accounts payable of a company’s books is no longer outstanding, it is referred to as paid on account. Payments made on account decrease accounts payable as a debit entry to the account. Most lenders will accept payments on account. Example of Purchases On AccountFor example, if a business purchases $5,000 worth of merchandise on account, this refers to the purchase of the goods on credit and deferral of payment. The business will have an increase in its accounts payable of $5,000. This means that the business will owe $5,000 for the purchase of the merchandise since they have not rendered payment at the time the goods were delivered. Types of On AccountOn account can refer to several bills or debt settlement events. On account could refer to “payment on account” in which payment is made against a certain customer's account without any reference to a specific invoice. Payments on account are often made for purchases on account where the customer has not yet received a bill or invoice. They are common in industries in which it is common for businesses to purchase goods and services on credit. Example of On AccountFor example, a customer has a $20,000 outstanding balance due to a vendor. The customer makes a $10,000 payment to the vendor with no reference attributed to an individual invoice. The payment made will be applied against the outstanding balance as a whole. At a later date, the payments can be partially or fully matched to the related invoice. Usually, customers are given a specific period in which to make full payment on a specific invoice, even when credit is extended. It is very important, for accuracy of accounting, to keep accurate records of all accounts payable and accounts receivable, and to match payments on account with their relevant invoices as soon as can be done so. The maintenance of accurate records and the proper classification of payments allows accounting ledgers to be correctly reconciled at the end of the month, quarter, or year. What is the journal entry for cash payment?A cash payment journal, also known as a cash disbursement journal, is used to record all cash payments (or disbursements) made by the business. Examples of major cash payments in a business that may be recorded in the cash payment journal are: Payments to creditors.
How is a cash payment recorded on the cash account?Cash payments are accounted for with a credit because there is a decrease in the value of an asset. In this case, that asset is cash. Whenever cash is received, it is recorded as a debit. Whenever cash is paid out, it is recorded as a credit.
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