TOPIC

Cash Payments Journal of a

14 services business

In this topic, you will learn about FINANCIAL LITERACY.

We will look at:
• the Cash Payments Journal (CPJ) of a services business
• formats and uses of the columns in the CPJ
• source documents used to complete a CPJ
• entering cash transactions in the CPJ
• closing off the CPJ
• the effect of these cash transactions on the accounting
equation
• entering combined transactions in the CRJ and CPJ

Key concepts
• Cash Payments Journal • cheque • counterfoil
• balancing

Figure 14.1 Rafiq needs to pay for certain items for his courier business.

Discuss in class
Remember Rafiq’s courier business Xpress-It from Topic 13?
We looked at the type of income he received. But to run any
business you need to buy things as well. What types of payment
do you think Rafiq needs to make? If he ran his business from an
office space instead of from his home, what extra expenses would
he have?

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 Cash Journals
We’ve already learnt that a services business is a business that
sells a service or skill to its clients. In Topics 9 and 13 we looked
at the Cash Receipts Journal of a services business which records
all the cash received by a business. Now we’ll look at the Cash
Payments Journal which records all the cash or cheque payments
of a business.

Cash Payments Journal Glossary

We already know the purpose of the Cash Payments Journal, Cash Payments
which shows all transactions where the business paid by cheque. Journal: record of
So this will show all the payments, which is all cheques drawn all payments made
by cheque
against the current bank account of the business.

Information is taken off the following source documents:

• cheques
• cheque counterfoils.

The formats and uses of columns in the CPJ

Example
   
Cash Payments Journal of Xpress-It for October 2014 CPJ1
Doc. Day Name of payee Fol. Bank Stationery Wages Sundry accounts 
no. Amount Fol. Details
         

  
  
 The name of the subsidiary journal
 The name of the business
 The month and year relating to the transactions
 The journal reference number; in this case CPJ (for Cash
Payments Journal) and 1 (for the 1st month of opening)
 The number of the source document used
 The date when the cheque was issued
 The name of the person or business to whom the cheque is
being paid (or ‘cash’ if it’s a cash cheque)
 The folio number of the creditor involved (only used in
Grade 9)
 The amount paid (appears on the cheque)
 The amounts paid for stationery, where applicable
 The amounts paid for wages, where applicable

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  For accounts other than those specifically listed in columns in
the CPJ
 The sundry amount paid
 The folio number of the account involved in the General
Ledger, which is entered after posting as a cross-reference
 The relevant General Ledger account e.g. postage, telephone
etc.
 The total of all the amounts in each column, which will be
posted to the General Ledger
 The folio number of the account involved in the General
Ledger

Source documents used to complete the CPJ

The following source documents are used in the CPJ:
• Cheque: Issued by the business to pay for expenses and
assets. The supplier or creditor receives the original cheque.
• Cheque counterfoil: The details of the cheque are copied
onto the cheque counterfoil. This remains in the cheque
book and the business uses it as a source document.

Entering cash transactions in the CPJ

Example
On their first days of trading, Xpress-It made the following cheque
payments:

Chq No. Date Amount Paid to: For:

001 01 Oct R8 000 Biker Mania Asset: Motorbike
002 02 Oct R300 Cell4U Airtime
003 02 Oct R100 PNA Invoice book, pen
004 02 Oct R350 Sasol Petrol for bike
How do we record these transactions?

Solution

001 01 Oct R8 000 Biker Mania Asset: Vehicles

This was an assets purchase and not an expense. Since it’s not a
stationery or wages item, it is recorded under Sundry accounts.

Cash Payments Journal of Xpress-It for October 2014 CPJ1

Doc. Day Name of payee Fol. Bank Stationery Wages Sundry accounts
no. Amount Fol. Details
001 01 Biker Mania 8 000 00 8 000 00 Assets:
Vehicles

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 These are all expenses so we record them in the same way. Only
the columns where the expense is allocated will differ.

002 02 Oct R300 Cell4U Airtime

003 02 Oct R100 PNA Invoice book, pen
004 02 Oct R350 Sasol Petrol for bike

Cash Payments Journal of Xpress-It for October 2014 CPJ1

Doc. Day Name of payee Fol. Bank Stationery Wages Sundry
no. accounts
Amount Fol. Details
001 01 Biker Mania 8 000 00 8 000 00 Vehicles
002 02 Cell4U 300 00 300 00 Telephone
003 PNA 100 00 100 00
004 Sasol 350 00 350 00 Vehicle
expenses
We continue this way until all the payments are recorded for the
month.

Balancing the CPJ

Once we have completed the CPJ for the month, we need to
find the totals of each column. The totals of the Bank column
must equal the sum of all the other columns. If these two totals
are the same, we say the CPJ balances – the same amount
appears on both ‘sides’ of the CPJ.

Example
Let’s balance Xpress-It’s CPJ for October. (We have not added
extra transactions but there obviously would have been payments
until 31 October.)

Cash Payments Journal of Xpress-It for October 2014 CPJ1

Doc. Day Name of payee Fol. Bank Stationery Wages Sundry accounts
no. Amount Fol. Details
001 01 Biker Mania 8 000 00 8 000 00 Vehicles
002 02 Cell4U 300 00 300 00 Telephone
003 PNA 100 00 100 00
004 Sasol 350 00 350 00 Vehicle
expenses
8 750 00 100 00 8 650 00

Let’s see if the CRJ balances:

Total Bank column R8 750
Total other columns: Stationery
Sundry accounts
R100
R8 650 } R8 750
The totals are the same, so we say the CRJ balances.

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 The effect of cash transactions on the
accounting equation
In Topic 9 we saw how to enter a cash transaction from the CRJ
on the accounting equation. Now let’s see how the transactions
of the CPJ affect the accounting equation (we did this already in
Topic 5).
We’ll use the transactions for Xpress-It for October.

Example
Motorbike bought for R8 000 from Biker Mania, paid by cheque

Assets Owner’s Equity Liabilities

Effect Reason Effect Reason Effect Reason
+8 000 Vehicles
increased
–8 000 Cash decreased

Airtime bought for the month, R300

Assets Owner’s Equity Liabilities

Effect Reason Effect Reason Effect Reason
–300 Cash decreased –300 Telephone —
expense

Stationery bought for invoicing, R100

Assets Owner’s Equity Liabilities

Effect Reason Effect Reason Effect Reason
–100 Cash decreased –100 Stationery —
expense

Petrol bought for motorbike, R350

Assets Owner’s Equity Liabilities

Effect Reason Effect Reason Effect Reason
–350 Cash decreased –350 Motor vehicle —
expense

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 Activity 14.1
Tammy Fortuin decorates her friends’ homes by painting murals
and finding well-priced linen and materials. On 1 June 2013 she
decided to open her own business, Rooms with a View. Tammy
opened a cheque account for the business at SABA Bank (no
456 333 605), Porterville.
Required
1. Record the transactions below in the CPJ of Rooms with
a View for July 2013. Supply analysis columns for: Bank,
Material costs, Wages, Sundry accounts. (24)
2. Close off the CPJ at the end of July. (1)
3. Complete the cheque issued on 28 July 2013.  (10)
Transactions for July 2013
02 Paid R155 to the City Council for connecting water and
electricity. Used cheque no. 001
04 Paid R5 660 by cheque for rent to Premier Properties
07 Bought equipment from G R Trading Post, R3 444 and
paid by cheque
09 Bought paint supplies from Tradouw Hardware, R255 and
paid by cheque
14 Paid wages to painters, R330 cash
18 Bought paper from Designer Place as part of project, R557
25 Wrote out a cheque to the owner for personal use, R550
28 Paid wages to painters, R330 cash
31 Paid the telephone account to Telkom R256

Combined transactions in the CRJ and CPJ

In Topics 9 and 13 we learnt how to enter cash receipt
transactions in the CRJ, close off the CRJ at the end of the
month, and enter the transactions on the accounting equation
to show their effect. In this topic, we did the same for cash
payment transactions in the CPJ. In real life, we combine these
two actions to complete both the CRJ and the CPJ every month.
The most important thing to know is whether the transaction
is a payment or a receipt. Remember to look for these words:
• Receipts: received, banked, issued a receipt for
• Payments: paid, bought, issued a cheque for.

The rest of the activities in this topic will help you to practise
entering combined transactions.

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