Cash Books:

A Cash Book is used to record all the Receipts and Payments inform of cash or cheques for a
particular financial period. The cashbook also shows the available cash at bank and cash in hand.

The cashbook forms part of the general ledger and records the source documents; that is receipts
and cheques.

Types of cash books:

One Column Cash Book/ Single Column Cash Book.

It contains an individual cash or bank account column but not both at the same time.

Dr Receipts Payments Cr
Date Details Cash Date Details Cash

OR
Dr Receipts Payments Cr
Date Details Bank Date Details Bank

Two Column Cash Book/ Double Column Cashbook.

This cash book combines both cash and bank accounts. The amount column is sub-divided into
two; cash and bank columns.

Dr Receipts Payments Cr
Date Details Bank Cash Date Details Bank Cash

Three Column Cash Book.

This cash book combines cash, bank and discounts columns. The amount column is sub-divided
into three; cash, bank and discounts columns.

Dr Receipts Payments Cr
Date Details Discount Bank Cash Date Details Discount Bank Cash
Allowed Received

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The balances in the cash book form part of the ledger balances. The cash book can have either a
credit or debit balance. A debit balance means the business has cash at the bank and a credit
balance means that the account at the bank is overdrawn resulting to a bank overdraft (That is the
business firm owes the bank some money).

Totals from discounts allowed and discounts received columns are posted to the respective
discount accounts.

Purpose of keeping three column cash book.

1.) Accurate recording of cash discounts allowed (Dr. side) and cash discount received (Cr. side)
2.) Accurate recording of cash and cheque receipts and payments.
3.) Records opening and closing balances at beginning and end of financial year respectively.
4.) Helps detect errors and fraud.

Discounts

Discounts are allowances given by a trader or manufacturer to another trader or customer to enable
or encourage them pay promptly or buy in bulk or earn profits. Discounts can be classified into
either:

i. Trade Discount
ii. Quantity Discount Discount Allowed
iii. Cash Discount
Discount Received
• Trade Discount:

Trade discount is allowance given by a trader to another trader to enable them earn a profit on
goods that have low profit margin or have fixed prices.

• Quantity Discount:

Quantity discountis allowance given by a trader to encourage bulk purchasing from the customers.

Accounting treatment for Trade and Quantity discounts;

These discounts are shown as a deduction from invoice price and only NET AMOUNT paid or
received is treated in the books of accounts.

• Cash Discount
Cash discount is allowance given to encourage buyers or customers to pay promptly within the
stipulated period. Cash discount is further sub-divided into;

(i) Discount Allowed

Discountsallowed are allowances made by a business firm on the amounts receivable from
customers so as to encourage prompt payment. The amount for discount allowed is deducted from
the sales invoice. This allowance given to debtors and is treated as an EXPENSE.

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Accounting treatment for Discount Allowed;

When incurred Debit : Discount allowed Account

Credit : Debtors Account/ Accounts Receivable
At year end Debit : Income Statement/ Profit and loss Account
Credit : Discount allowed Account

(ii) Discount Received

Discounts received are allowancesgiven by the creditors or suppliers to abusiness firm to
encourage payment of amount due within the agreed time. The amount for discount received is
deducted from the invoice price.
This allowance is given by creditors and is treated as INCOME.

Accounting treatment for Discount Received

When earned Debit : Creditors Account/ Account Payable
Credit : Discount received Account
At year end Debit : Discount received Account
Credit : Income Statement/ Profit and loss Account

Illustration 1:

The following details belong to JJ Wholesalers. Prepare a two column cashbook for the month
ending March, 20x3.

01/03/20x3: Started business with capital inform of cash Sh. 100,000.

02/03/20x3: Paid rent by cash Sh10,000.
03/03/20x3: Received Loan of Sh 500,000 via cheque from Barclays bank.
04/03/20x3: Paid Kenya Motors Sh65,000 by cheque.
05/03/20x3: Made Cash sales of Sh98,000.
07/03/20x3: Nathan a debtor paid us by chequeSh62,000.
09/03/20x3: Paid Bakes Ltd in cash Sh22,000.
11/03/20x3: Made cash sales paid directly into the bank for Sh53,000.
15/03/20x3: Gilbert paid us in cash Sh65,000.
16/03/20x3: Took Sh50,000 out of the cash till and deposited it into the bank account.
19/03/20x3: Made loan repayment of Sh 100,000 by cheque to Barclays Bank
22/03/20x3: Made cash sales paid directly into the bank for Sh 66,000.
26/03/20x3: Paid motor expenses by chequeSh12,000.
30/03/20x3: Withdrew Sh100,000 cash from the bank for business use.
31/03/20x3: Paid wages in cash for Sh97,000.

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 Solution:

Dr. Receipt Payments Cr.

Date Details Cash Bank Date Details Cash Bank
1/3 Capital 100,000 2/3 Rent 10,000
3/3 Barclays Loan 500,000 4/3 Kenya Motors 65,000
5/3 Sales 98,000 9/3 Bake Ltd 22,000
7/3 Nathan 62,000 16/3 Bank (Contra) 50,000
11/3 Sales 53,000 19/3 Barclays Loan 100,000
15/3 Gilbert 65,000 26/3 Motor Expenses 12,000
16/3 Cash (Contra) 50,000 30/3 Cash (Contra) 100,000
22/3 Sales 66,000 31/3 Wages 97,000
30/3 Bank (Contra) 100,000 Balances c/d 184,000 454,000
363,000 731,000 363,000 731,000

Illustration 2:

Mwananchi traders had the following account balances as at 1st January 20x3.
Cash Ksh2,900
Bank Ksh 65,400
Debtors accounts: Creditors accounts:
Benson Ksh 12,000 Unity Ltd Ksh 6,000
Nathan Ksh 28,000 ABC Ltd Ksh 44,000
Dennis Ksh 4,000 Riper Ltd Ksh 10,000

The following transactions also took place in the month of January;

02/01/20x3: Benson cleared his account by cheque after deducting 8% cash discount.
08/01/20x3: Mwananchi traders paid Riper Ltd by cheque less 5% cash discount.
11/01/20x3: Made drawings for Ksh10,000 from the bank for business use.
16/01/20x3: Nathan paid us his amount due by cash after deducting 3% discount allowed.
25/01/20x3: Mwananchi traders paid office expenses in cash for Ksh 9,200.
28/01/20x3: Dennis settled his account by cash.
29/01/20x3: Paid Unity Ltd the amount due by cheque.
30/01/20x3: Paid ABC Ltd partly Ksh 40,000 by cheque.
Solution:
Dr. Receipt Payments Cr.
Date Details Disc Cash Bank Date Details Disc Cash Bank
All Rec
1/1 Balance b/f 2,900 65,400 8/1 Riper Ltd 500 9,500
2/1 Benson 960 11,040 11/1 Cash (Contra) 10,000
11/1 Bank (Contra) 10,000 25/1 Office expenses 9,200
16/1 Nathan 840 27,160 29/1 Unity Ltd 6,000
28/1 Dennis 30/1 ABC Ltd 40,000
31/1 Balance c/f 30,860 10,940
1,800 40,060 76,440 500 40,060 76,440

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SALES LEDGER:
Dr Benson Account (Debtor) Cr
1/1 Balance b/f 12,000 2/1 Bank 11,040
2/1 Discount Allowed 960
12,000 12,000

Dr Nathan Account (Debtor) Cr

1/1 Balance b/f 28,000 16/1 Cash 27,160
16/1 Discount Allowed 840
28,000 28,000

Dr Dennis Account (Debtor) Cr

1/1 Balance b/f 4,000 28/1 Cash 4,000

PURCHASES LEDGER:
Dr Unity Ltd Account (Creditor) Cr
29/1 Bank 6,000 1/1 Balance b/f 6,000

Dr ABC Ltd Account (Creditor) Cr

30/1 Bank 40,000 1/1 Balance b/f 44,000
31/1 Balance c/f 4,000
44,000 44,000

Dr Riper Ltd Account (Creditor) Cr

8/1 Bank 9,500 1/1 Balance b/f 10,000
8/1 Discount Received 500
10,000 10,000

GENERAL LEDGER:

Dr Office Expenses Account Cr

25/1 Cash 9,200 31/1 Balance c/f 9,200

Dr Discount Allowed Account Cr

2/1 Benson 960
16/1 Nathan 840 31/1 Balance c/f 1,800
1,800 1,800

Dr Discount Received Account Cr

31/1 Balance c/f 500 8/1 Riper Ltd 500

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Exercise:
Michael Kamau runs a general groceries shop in Nairobi. The following transactions relate to the
shop for the month of September 20x3.

Sept 1st : Cash in hand Sh. 31,400; Bank balance Sh. 50,800; Capital account Sh. 82,200
Sept 3rd: Bought goods in cash for Sh. 8,200
Sept 4th: Purchased goods on credit from Jambo ltd for Sh. 11,600 less 10% trade discount.
Sept 7th: Sold goods on credit to Simon at Sh. 17,800 less 20% trade discount.
Sept 10th: Withdrew cash from the bank amounting to Sh. 1,000 for private use.
Sept 12th: Sold goods on credit to Eric at Sh. 12,800.
Sept 14th: Paid Sh. 10,000 in cash to Jambo ltd in full settlement of their account.
Sept 15th: Received Sh. 8,000 in cash from Eric in part settlement of his account
Sept 17th: Goods worth Sh. 800 were returned by Eric.
Sept 21th: Purchased goods on credit at Sh. 17,400 from Shauri ltd.
Sept 24th: Paid Sh. 12,000 to Shauri ltd by cheque; discount given was Sh. 600.
Sept 25th: Purchased furniture on credit from Magic furniture for Sh. 16,000
Sept 26th: Transferred Sh. 4,400 from the cash till to the bank account.
Sept 27th: Eric was declared bankrupt and could only pay Sh.2,000 of the debt by cheque the
rest being treated as a bad debt.
Sept 28th: Goods worth Sh. 1,200 were returned to Shauri ltd.
Sept 29th: Goods worth Sh. 800 were taken by Michael Kamau for his personal use.
Sept 29th: Paid Sh. 1000 by cheque for advertising.
Sept 29th: Paid wages to shop assistant in cash amounting to Sh. 3,600.
Sept 29th: Made cash sales of Sh. 43,600
Sept 29th: Banked Sh. 40,000
Sept 29th: Received cash of Sh. 11,800 from Simon in part payment of their account after
allowing a discount of Sh. 200.
Required;
a) Record the above transactions in the appropriate ledger accounts including the three column
cash book.
b) Extract a trial balance as at 30th September 20x3.

Petty Cash Book and the Imprest system of Accounting:

A Petty Cash Book records all the petty cash vouchers maintained by a cashier. The petty cash
vouchers summarize expenses paid by the cashier. These expenses are classified in the petty cash
book as per the individual expense.

Format of a Petty Cash Book:

Receipts Date Detail Payments Expenses e.g.

Amount Postage Cleaning Stationery Traveling Ledger

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 The Closing balance of the petty cash book represents the balance of cash in hand. The totals
amount of the expenses is posted to the debit side of the expense accounts. In case a business firm
operates another cashbook together with a petty cash book, then the totals of the expenses are
posted on the credit side of the cash in hand cashbook.

The Imprest system:

The Imprest system refers to the system where a petty cashier is given enough cash by an
accountant to meet the petty cash needs for a particular period. At the end of the period, the
accountant finds out the amounts spent by the petty cashier, by accessing the Petty Cash Book.

The accountant now reimburses the value of the amount spent on petty cash in the period to the
petty cashier with the aim of restoring back the amount that was available at the beginning of the
period. This system is referred to as the Imprest System and the reimbursed amount is referred to
as the Petty Cash Float.

The following illustrates how an Imprest system works.

Ksh
Petty Cash Float at the beginning of the period 20,000
Expenses incurred and fully paid (14,500)
Balance 5,500
Reimbursement 14,500
The Cash float still remains to be the same that is 20,000

Illustration:

ABC Ltd has a cashier who was issued with Ksh 20,000 as the Cash Float at the beginning of the
month of May, 20x3. The following petty expenses were incurred during the month. Prepare a
detailed petty cash book showing the balance to be carried forward to the next period.
Ksh
02/05/20x3: Bought stamps for 800
03/05/20x3: Paid bus fare for 1,200
05/05/20x3: Cleaning materials 2,400
07/05/20x3: Bought fuel 1,500
10/05/20x3: Cleaning wages 3,000
14/05/20x3: Bought stamps 2,000
19/05/20x3: Paid Jack (creditor) 4,000
22/05/20x3: Fuel costs 1,500
24/05/20x3: Bought 2 packets of biro pens 1,450
Solution:
Receipts Date Detail Payments Expenses e.g.
Amount Postage Cleaning Stationery Traveling Ledger
(Ksh) (Ksh) (Ksh) (Ksh) (Ksh) (Ksh) (Ksh)
20,000 1/5 Balance b/f

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 2/5 Stamps 800 800
3/5 Bus fare 1,200 1,200
5/5 Cleaning 2,400 2,400
7/5 Fuel 1,500 1,500
10/5 Wages 3,000 3,000
14/5 Stamps 2,000 2,000
19/5 Jack 4,000 4,000
22/5 Fuel costs 1,500 1,500
24/5 Biro pens 1,450 1,450
17,850 2,800 5,400 1,450 4,200 4,000

17,850 30/5 Cash

30/5 Balance c/f 20,000
37,850 37,850

20,000 1/6 Balance b/f