Posting transactions to the ledger is a fundamental step in the accounting cycle, transforming raw financial data from source documents and journals into a structured system of accounts. For Human Resource professionals in Kenya, understanding ledger posting supports accurate payroll accounting, benefits administration, and budgeting for staffing costs. Effective ledger management ensures that financial records reflect all HR-related transactions, facilitating compliance with regulatory requirements such as those from the Kenya Revenue Authority (KRA) and the National Social Security Fund (NSSF). This chapter delves into the classification of ledgers, providing clarity on how various ledgers serve different accounting functions within HR operations.

3.1 Cash books

A cash book is the book of original entry in which all receipts and payments of cash and bank money are recorded in date order. It also serves as a ledger account, because its balances are carried straight into the trial balance without separate posting to a cash or bank account. In organisations such as schools, hospitals and SACCOs, the cash book tells the accountant at any moment how much money is in the till and how much is at the bank. It is also the first place an auditor looks when checking whether cash has been handled honestly. Example: the accounts clerk of a private school in Nakuru records every fee payment, bank deposit and cheque in the cash book, so the bursar can read the balance of cash and bank each morning.

The cash book has a debit side for receipts and a credit side for payments. Three layouts are used, each suited to a different need: the two column cash book, the three column cash book and the petty cash book.

3.1.1 Two column cashbook

A two column cash book has two money columns on each side: one for cash and one for bank. It lets a business record both its cash in hand and its bank account in a single book, and it makes the movement of money between the two easy to follow. Example: a hardware shop in Eldoret receives cash from customers, pays some of it into the bank, and pays rent by cheque, and it records all of these in one book with a cash column and a bank column.

• Debit side: Records money received, whether cash or cheques banked, with the date, the details of who paid, a folio reference and an amount in the cash or bank column.
• Credit side: Records money paid out, with the same columns for date, details, folio and amount.
• Cash column: Shows the notes and coins held by the business, which can never be negative because a business cannot pay out more cash than it has.
• Bank column: Shows the balance at the bank, which may become negative if the account is overdrawn, in which case it appears as a credit balance.
• Contra entries: Transactions that move money between cash and bank, such as banking cash or withdrawing cash for office use, are entered on both sides of the same cash book.
• Folio column: Shows the ledger page number of the opposite account, so that the entry can be traced.

Contra entries

A contra entry is a transaction where both the debit and the credit fall in the cash book. Depositing cash into the bank is entered on the debit side in the bank column and on the credit side in the cash column. Withdrawing cash from the bank for office use is entered on the debit side in the cash column and on the credit side in the bank column. The letter C is written in the folio column to show that no ledger posting is needed.

Steps in recording a two column cash book

1. Enter opening balances: Write the cash and bank balances brought down from the last period on the debit side, in their own columns.
2. Record receipts: Enter each cash or cheque receipt on the debit side, in the cash or bank column according to how it was received.
3. Record payments: Enter each payment on the credit side, in the cash column if paid in cash and in the bank column if paid by cheque or transfer.
4. Record contra entries: Enter bank deposits and cash withdrawals on both sides, and write C in the folio column.
5. Total each column: Add the debit and credit columns separately for cash and for bank.
6. Balance the accounts: Subtract the smaller total from the larger and write the difference on the smaller side as balance carried down (c/d).
7. Bring down the balances: Write the same figures on the opposite side below the totals as balance brought down (b/d) for the next period.
8. Post to the ledger: Post each entry to the opposite ledger account, except contra entries, which are not posted.

Worked example

Example: a hardware shop in Eldoret had cash Ksh 20,000 and a bank balance of Ksh 150,000 on 1 March. The transactions were:

• 2 March: cash sales Ksh 35,000.
• 3 March: banked cash Ksh 30,000.
• 5 March: paid rent by cheque Ksh 25,000.
• 8 March: withdrew Ksh 10,000 from the bank for office use.
• 10 March: paid wages in cash Ksh 12,000.

Debit side

Credit side

Cash working: debit total = 20,000 + 35,000 + 10,000 = 65,000

Cash credit total before balance = 30,000 + 12,000 = 42,000

Balance c/d = 65,000 − 42,000 = Ksh 23,000

Bank working: debit total = 150,000 + 30,000 = 180,000

Bank credit total before balance = 25,000 + 10,000 = 35,000

Balance c/d = 180,000 − 35,000 = Ksh 145,000

3.1.2 Three column cashbook

A three column cash book adds a discount column to the cash and bank columns on each side. The discount column records cash discounts allowed to customers on the debit side and cash discounts received from suppliers on the credit side. It is used by businesses that regularly give or receive discounts for quick settlement of accounts. Example: a wholesaler in Kisumu allows a customer who pays within seven days to deduct Ksh 400 from the amount owed, and records the discount in the same line as the cheque received.

• Discount allowed column: On the debit side, shows reductions given to customers who paid promptly, and is an expense to the business.
• Discount received column: On the credit side, shows reductions granted by suppliers for prompt payment, and is a gain to the business.
• Cash and bank columns: Work as in the two column cash book and carry the actual money received and paid.
• Discount columns are not balanced: They are only totalled at the end of the period, because discounts are not money in hand.
• Posting of totals: The total of discount allowed is posted to the debit of the discount allowed account, and the total of discount received to the credit of the discount received account.
• Individual postings: Each discount is also posted to the personal account of the customer or supplier, together with the cash or cheque, so that the account is cleared.

Rules for entries in the discount columns

• Customer pays and receives a discount: The cash or cheque goes in the cash or bank column and the discount goes in the discount allowed column, both on the debit side.
• Supplier is paid and gives a discount: The cash or cheque goes in the cash or bank column and the discount goes in the discount received column, both on the credit side.
• Contra entries: These carry no discount and are entered in the cash and bank columns only.
• Cash sales and ordinary expenses: These carry no discount, so the discount columns are left empty.
• Checking: Money paid plus discount must equal the amount settled in the personal account.

The meaning and types of discount are covered in 3.4, and here only their place in the cash book is shown.

Worked example

Example: a wholesaler in Kisumu started March with cash Ksh 8,000 and a bank balance of Ksh 90,000. The transactions were:

• 1 March: received a cheque Ksh 19,600 from J. Mwangi, who was allowed a discount of Ksh 400.
• 3 March: cash sales Ksh 15,000.
• 5 March: paid K. Otieno by cheque Ksh 28,500 and received a discount of Ksh 1,500.
• 8 March: banked cash Ksh 10,000.
• 12 March: paid wages in cash Ksh 6,000.
• 15 March: received cash Ksh 9,700 from P. Wanjiru, who was allowed a discount of Ksh 300.

Debit side

Credit side

Cash working: debit total = 8,000 + 15,000 + 9,700 = 32,700

Payments = 10,000 + 6,000 = 16,000

Balance = 32,700 − 16,000 = Ksh 16,700

Bank working: debit total = 90,000 + 19,600 + 10,000 = 119,600

Payments = Ksh 28,500

Balance = 119,600 − 28,500 = Ksh 91,100

Discount totals: allowed = 400 + 300 = Ksh 700, posted to the debit of the discount allowed account. Received = Ksh 1,500, posted to the credit of the discount received account.

3.1.3 Petty cashbook

A petty cash book records small, everyday payments such as postage, bus fares, tea and stationery, which are too small to be paid by cheque. The petty cashier holds a limited float, and the main cashier saves time because the main cash book is not filled with many small payments. Most organisations use the imprest system, where the float is topped up at the end of each period by exactly the amount spent. Example: a county hospital in Kakamega gives its ward administrator a float of Ksh 10,000 each month for minor expenses, and the float is restored to Ksh 10,000 at the end of the month.

• Imprest amount: The fixed float, for example Ksh 10,000, which is restored at each period end.
• Petty cashier: The person who holds the float, makes the payments and keeps the petty cash book.
• Petty cash voucher: A signed form for each payment, showing the date, the purpose, the amount and who authorised it, which serves as the evidence of the payment.
• Receipts column: Records the float received from the main cashier on the debit side.
• Total payments column: Records the full amount of each payment.
• Analysis columns: Spread each payment into an expense heading such as postage, travel, stationery or cleaning, so that totals per type of expense are available at once.
• Ledger column: Records payments made to a supplier's account, such as a small debt settled from petty cash.

Steps in keeping a petty cash book

1. Receive the float: The petty cashier receives the imprest from the main cashier and enters it on the debit side as the opening amount.
2. Obtain a voucher for each payment: Every request for money is written on a voucher and approved before payment.
3. Enter the payment: The payment is recorded in date order in the total column and again in the correct analysis column.
4. Number the vouchers: Each voucher is given a number that is written in the voucher column, so entries can be checked later.
5. Total the columns at period end: The total payments column and each analysis column are added, and the analysis totals must add up to the total payments.
6. Balance the book: Subtract the total payments from the float and enter the balance c/d.
7. Restore the imprest: The main cashier gives the petty cashier the amount spent, which brings the float back to the original amount.
8. Post the analysis totals: The total of each analysis column is posted to the debit of the matching expense account, and the money is shown as a credit in the main cash book.

Worked example

Example: a county hospital in Kakamega operates a petty cash float of Ksh 10,000 on the imprest system. The payments in April were:

• 2 April: postage stamps Ksh 800, voucher 1.
• 4 April: bus fare Ksh 1,500, voucher 2.
• 7 April: stationery Ksh 2,200, voucher 3.
• 10 April: cleaning materials Ksh 1,100, voucher 4.
• 14 April: taxi fare Ksh 900, voucher 5.
• 18 April: postage Ksh 600, voucher 6.
• 22 April: paid creditor T. Kamau Ksh 1,000, voucher 7.

Postage total: 800 + 600 = Ksh 1,400

Travel total: 1,500 + 900 = Ksh 2,400

Analysis check: 1,400 + 2,400 + 2,200 + 1,100 + 1,000 = Ksh 8,100

Balance c/d = 10,000 − 8,100 = Ksh 1,900

Amount to restore the imprest = Ksh 8,100, which brings the float back to 1,900 + 8,100 = Ksh 10,000

Chapter Summary

This chapter explored the classification of ledgers, emphasizing the distinction between different types such as the general ledger and subsidiary ledgers, which organize financial data systematically. It then discussed ledger accounts identification, detailing how each account is uniquely recognized and recorded to ensure accurate tracking of transactions. The process of posting transactions to ledgers was examined, highlighting the methodical transfer of data from journals to ledger accounts to maintain comprehensive records. Balancing off ledger accounts was covered next, explaining the calculation of closing balances to determine the financial position of each account. The chapter introduced the trial balance as a critical tool for verifying that total debits equal total credits across all ledger accounts. Finally, the preparation of the trial balance was described, outlining the steps involved in compiling account balances into a structured summary to assist in the detection of errors before financial statements are prepared.