When do you record journal entries in the cash disbursements process?

Remember, not all actions trigger a journal

Now that we’ve looked at the physical flow, we need to focus on when journal entries are recorded.

When do you record journal entries in the cash disbursements process?

When an invoice is received, a journal entry to recognize what was purchased (expense, inventory, or other asset) and the cash / accounts payable that was used to pay

Dr. Expense / inventory / asset

Cr. Cash / accounts payable

Qs: So at what point in the flow would you record an entry?

The first point you would draft an entry is when an invoice is received

Qs: What would the debit and the credit be at this point?

When do you record journal entries in the cash disbursements process?

When cash is paid, a journal entry to recognize the cash disbursement is recorded

Dr. Accounts payable

Cr. Cash

Qs: And when would the next entry be?

When cash is actually disbursed

Qs: What would the debit and the credit be at this point?

Why do we not record a journal entry at the following stages:

Create the purchase order

Approve the invoice / disbursement

Qs: There are certain steps in the process where we do not record anything. Why? Go back to the idea of when we record a transaction.

Qs: What criteria need to be met to record a transaction?

-Probably

-Reliably measure

–

Qs: Using those criteria, why don’t we record a transaction when:

1.We create the purchase order

2.Approve the invoice (i.e. tell our staff the expense is appropriate)