Financial accounting is an essential skill for procurement management professionals, as it enables accurate recording and monitoring of cash transactions which directly impact organizational liquidity and supplier relationships. Managing cash effectively ensures procurement processes run smoothly, avoiding delays in payments or receipts that might compromise contract performance. In Kenya’s dynamic business environment, procurement officers must maintain detailed cash records for compliance with public financial management laws, such as the Public Finance Management Act, and to support transparent audits by bodies like the Auditor-General. This chapter focuses on preparing cash books, a fundamental financial record, and understanding the classification of cash receipts to enhance procurement transaction accuracy.

4.1 Cash books

A cash book is the book in which a business records all its receipts and payments of money, both in cash and through the bank, in date order. It is special because it is both a book of original entry and a ledger account: the cash book itself is the cash account and the bank account, so the other side of each entry is posted straight to the ledger without first going through a journal. For a procurement officer, the cash book shows how much money is available to pay suppliers, which suppliers have been paid and what cash discounts were earned for paying on time.

Definition and function of cash books

The cash book records receipts on the left (debit) side and payments on the right (credit) side, following the rules of double entry: money coming in is debited to cash or bank, money going out is credited.

• Book of original entry: Each receipt and payment is first recorded here from its source document, such as a receipt, a payment voucher, a cheque counterfoil or a bank advice.
• Ledger account: The cash and bank columns are the cash account and the bank account, so they are balanced in the cash book itself.
• Control of money: The balance shows how much cash is on hand and how much is in the bank at any time.
• Basis for reconciliation: The bank column is compared with the bank statement when preparing a bank reconciliation statement.
• Audit trail: Every entry carries a date, a description and a reference to its supporting document.

Columns of a cash book

• Date column: The date of each transaction, so that entries follow in time order.
• Details (particulars) column: The name of the account on the other side of the entry, for example the supplier paid or the customer who paid.
• Folio column: The reference of the ledger page where the other side of the entry is posted; a contra entry is marked "C".
• Voucher or receipt number: In many formats, a reference to the supporting document.
• Discount column: In the three column cash book only, the cash discount allowed or received on that payment.
• Cash column: Money received or paid in notes and coins.
• Bank column: Money received or paid through the bank account, by cheque, electronic funds transfer or mobile money paybill linked to the bank.

The cash and bank columns are balanced at the end of the period (for example monthly). The balance is written as "Balance c/d" on the smaller side and brought down as "Balance b/d" on the opposite side at the start of the next period.

Types of cash books

• Single column cash book: Has only a cash column on each side. It suits a very small business that keeps all its money in cash and has no bank account.
• Two column cash book: Has a cash column and a bank column on each side (4.1.1).
• Three column cash book: Adds a discount column on each side to the two column format (4.1.2).
• Petty cash book: Records small, day-to-day payments made from a separate petty cash fund, usually under the imprest system (4.1.3).

Role of cash books in procurement

• Timely supplier payments: The bank balance shows whether a supplier's invoice can be paid now or must wait, which helps avoid late payment disputes.
• Capturing cash discounts: Recording discounts received shows how much the business saves by paying suppliers within the credit terms.
• Budget monitoring: Payments recorded against suppliers and expense accounts show actual spending against the purchasing budget.
• Fraud and error detection: Regular balancing and bank reconciliation reveal unrecorded, duplicated or unauthorised payments.
• Evidence for audit: Each payment can be traced from the cash book to the payment voucher, the invoice, the goods received note and the order.

4.1.1 Two column cashbook

A two column cash book has two money columns on each side: one for cash and one for bank. It combines the cash account and the bank account in one book, which saves posting time and lets the business see both balances together. It is used by most small and medium businesses that keep a bank account and also handle some cash.

Rules for recording in a two column cash book

• Cash received: Debit side, cash column (for example cash sales).
• Money received into the bank: Debit side, bank column (for example a cheque or transfer from a customer).
• Cash paid: Credit side, cash column (for example wages paid in cash).
• Payments from the bank: Credit side, bank column (for example a cheque or transfer to a supplier).
• Contra entries: When cash is paid into the bank, the bank column is debited and the cash column credited; when cash is withdrawn from the bank for office use, the cash column is debited and the bank column credited. Both entries are in the cash book itself and are marked "C" in the folio column; nothing is posted to the ledger.
• Bank overdraft: If payments from the bank exceed receipts, the bank balance is a credit balance (an overdraft) and is brought down on the credit side.

Worked example: two column cash book

A building materials trader has the following transactions in October 2026:

• Oct 1: Cash in hand Ksh 15,000; cash at bank Ksh 120,000.
• Oct 3: Cash sales Ksh 28,000.
• Oct 5: Paid Mwangi, a supplier, by cheque Ksh 45,000.
• Oct 8: Received a cheque from Wanjiru, a customer, Ksh 32,000, and banked it.
• Oct 10: Paid wages in cash Ksh 12,000.
• Oct 12: Paid cash into the bank Ksh 20,000.
• Oct 15: Bought stationery for cash Ksh 3,500.
• Oct 20: Paid rent by cheque Ksh 25,000.

Debit side (receipts):

Credit side (payments):

Working:

Cash balance = 43,000 − (12,000 + 20,000 + 3,500) = 43,000 − 35,500 = Ksh 7,500

Bank balance = 172,000 − (45,000 + 25,000) = 172,000 − 70,000 = Ksh 102,000

The other side of each entry is posted to the ledger: Sales account credited Ksh 28,000, Wanjiru credited Ksh 32,000, Mwangi debited Ksh 45,000, Wages debited Ksh 12,000, Stationery debited Ksh 3,500 and Rent debited Ksh 25,000. The contra entry of Oct 12 is not posted anywhere else.

4.1.2 Three column cashbook

A three column cash book has three money columns on each side: discount, cash and bank. The discount columns record cash discounts, which are reductions given for paying a debt promptly. Discounts allowed to customers are entered on the debit side next to the receipt, and discounts received from suppliers on the credit side next to the payment. Trade discounts are never entered in the cash book, because they are deducted on the invoice before any entry is made (see 4.4).

Features of the three column cash book

• Discount allowed column (debit side): The discount given to a customer who pays early; it is an expense of the business.
• Discount received column (credit side): The discount a supplier gives the business for paying early; it is an income of the business.
• Memorandum columns: The discount columns are not part of double entry and are not balanced; they are only totalled at the end of the period.
• Posting the totals: The total of discounts allowed is debited to the Discount allowed account, and the total of discounts received is credited to the Discount received account, in the general ledger.
• Personal accounts: Each customer's account is credited with both the money received and the discount allowed; each supplier's account is debited with both the money paid and the discount received, so that the whole debt is cleared.

Worked example: three column cash book

A stationery wholesaler has the following transactions in November 2026:

• Nov 1: Cash in hand Ksh 8,000; cash at bank Ksh 95,000.
• Nov 4: Otieno, a customer who owes Ksh 40,000, paid by cheque after deducting a 2.5% cash discount.
• Nov 9: Paid Achieng, a supplier owed Ksh 60,000, by cheque, after deducting a 5% cash discount.
• Nov 12: Cash sales Ksh 18,000.
• Nov 15: Withdrew Ksh 10,000 from the bank for office use.
• Nov 20: Paid Kiprop, a supplier owed Ksh 12,000, in cash, after deducting a 2% cash discount.
• Nov 25: Paid transport in cash Ksh 2,500.

Working for the discounts:

Otieno: discount = 2.5% × 40,000 = 1,000; amount received = 40,000 − 1,000 = Ksh 39,000

Achieng: discount = 5% × 60,000 = 3,000; amount paid = 60,000 − 3,000 = Ksh 57,000

Kiprop: discount = 2% × 12,000 = 240; amount paid = 12,000 − 240 = Ksh 11,760

Debit side (receipts):

Credit side (payments):

Working:

Cash balance = 36,000 − (11,760 + 2,500) = 36,000 − 14,260 = Ksh 21,740

Bank balance = 134,000 − (57,000 + 10,000) = 134,000 − 67,000 = Ksh 67,000

Posting: Discount allowed account debited Ksh 1,000; Discount received account credited Ksh 3,240; Otieno credited Ksh 39,000 and Ksh 1,000; Achieng debited Ksh 57,000 and Ksh 3,000; Kiprop debited Ksh 11,760 and Ksh 240.

4.1.3 Petty cashbook

A petty cash book records small, frequent payments made in cash, such as postage, tea and sugar, small cleaning materials, photocopying and local transport to a supplier. These payments are too small and too many to be passed through the main cash book one by one, so they are made by a petty cashier from a separate fund and recorded in the petty cash book. The petty cash book is usually kept on the imprest system and has analysis columns that group the payments by type of expense.

The imprest system

Under the imprest system the petty cashier is given a fixed sum, the float or imprest, at the start of a period. At the end of the period the chief cashier reimburses exactly the amount spent, so that the petty cashier starts each period with the full float again.

• Fixed float: The imprest amount is set according to the usual small spending of a period, for example Ksh 10,000 a month.
• Reimbursement equals spending: The amount refunded equals the total of the petty cash vouchers for the period.
• Control check: At any time, cash in hand plus vouchers paid should equal the float, so a surprise count can easily detect a shortage.
• Limit per payment: A maximum amount per payment is set; larger payments go through the main cash book.
• Supporting documents: Every payment is backed by a signed petty cash voucher with the receipt attached.

Columns of an analysed petty cash book

• Receipts column: On the left, the money received from the chief cashier (the float and each reimbursement).
• Date, details and voucher number: For each payment.
• Total column: The full amount of each payment.
• Analysis columns: One column for each regular type of expense, such as postage and stationery, travel, cleaning, refreshments and motor expenses; each payment is entered in the total column and again in its analysis column.
• Ledger posting: At the end of the period the total of each analysis column is debited to its expense account in the general ledger.

Worked example: petty cash book

A procurement office of a trading business keeps an imprest of Ksh 10,000. On 1 November 2026 the petty cashier receives the float. The payments in November are: Nov 2 postage Ksh 450; Nov 4 cleaning materials Ksh 1,200; Nov 7 travel to a supplier Ksh 800; Nov 10 tea and sugar Ksh 650; Nov 14 photocopying Ksh 300; Nov 18 fuel for the delivery motorcycle Ksh 1,500; Nov 25 travel Ksh 600.

Working:

Total spent = 450 + 1,200 + 800 + 650 + 300 + 1,500 + 600 = Ksh 5,500

Check of analysis columns = 750 + 1,400 + 1,200 + 650 + 1,500 = Ksh 5,500

Balance c/d = 10,000 − 5,500 = Ksh 4,500

Reimbursement = amount spent = Ksh 5,500, which restores the float to 4,500 + 5,500 = Ksh 10,000

Advantages of the petty cash book

• Saves the chief cashier's time: Small payments do not clutter the main cash book.
• Fewer ledger postings: Only the column totals are posted, not every small payment.
• Better control: The imprest system makes shortages easy to detect and limits the cash at risk.
• Training: It gives junior staff responsibility for a small fund under supervision.
• Expense analysis: The analysis columns show at a glance where small sums are being spent.

Chapter Summary

This chapter focused on the preparation and management of cash books, essential tools for accurate financial record-keeping. It began by exploring the structure and use of the two column cashbook, which records cash and bank transactions, followed by the three column cashbook that adds a discount column for more detailed tracking. The petty cashbook was also examined, highlighting its role in managing small, routine expenses. The classification of cash receipts was outlined to ensure proper categorization and accountability. Detailed procedures for recording cash receipts were discussed, emphasizing accuracy and timeliness. The chapter concluded with an analysis of different types of discounts, distinguishing cash discounts, trade discounts, and quantity discounts, each affecting the recording and presentation of financial transactions differently. Understanding these concepts equips learners with practical skills to maintain comprehensive and reliable cash records.