The procedure for closing out the cash disbursements journal is similar to the one for the cash receipts journal. The Accounts Payable account is the control account for disbursements.

Most businesses have numerous subaccounts that feed into Accounts Payable so they can track specific expenses. For example, if you’ve set up individual vendor accounts for your major vendors, your first step will be to prove out those accounts and then check to be certain the total of bills paid and still due match what is in your cash disbursements journal.

When it comes time to close the books at the end of a month, you probably will have bills you paid that represent quarterly or annual payments. You also may have bills that need to be paid for expenses incurred during the month that won’t actually be paid until the next month. For example, when Lisa’s Candle Shop buys inventory at the end of the month, the invoice for that inventory probably won’t be paid until the next month.

After reviewing the remaining bills to be paid, you should be certain to record any bills not yet paid in Accounts Payable that were expenses for the month you are closing. These entries would look like this.

Sales Tax Collected is another balance sheet account that is likely to carry a balance from one month to the next, depending on when your state or local government requires payment. You should be posting to this accrual account as you complete your daily sales summaries, so you probably don’t have any corrections to be made as part of the closing process. When reviewing these numbers at month-end, you could find that the sales tax was not recorded one day. Before closing the books, be sure the balance in Sales Tax Collected matches the balance you calculated based on your sales.

Lisa’s Candle Shop had $1,330 in Sales Tax Collected based on our preceding calculation. Before paying those taxes to the government entities, Lisa would definitely want to review the actual entries to Sales Tax Collected and make sure they match the numbers being submitted on the sales tax reports. Any difference is certainly worth researching, because it could impact the amount of tax due.

Another account that probably has a balance that carries over from month to month is Accrued Payroll Taxes. As you remember from our discussion in the last section, some payments from this account are only made once every quarter while others are made once or twice a month. We’ll take a closer look at that account in the next chapter when we discuss closing the payroll journal.

During the close-out process of Accounts Payable, you may also find bills that were charged to the wrong account. Before closing the books, you should make the adjusting entries to correct those errors. These changes are critical to be certain your profit and loss (P&L) statement reflects your actual income and expenses and that the expenses are reflected in this statement accurately.