Preparing the final books of accounts is a critical function for food and beverage management professionals in Kenya, ensuring that financial data accurately reflects the business’s performance over a period. This process consolidates daily transactional records into formal accounting statements that meet regulatory and managerial requirements. Given the competitive nature of the Kenyan hospitality sector, precise accounting supports effective decision-making, budgeting, and compliance with tax authorities such as KRA. This chapter covers essential accounting terms and the preparation of journal accounts, foundational skills for maintaining transparent and reliable financial records in food and beverage enterprises.

4.1 Definition of Terms

Every entry in the accounts begins with a document and is first written in a book of original entry before it reaches the ledger. A food and beverage manager handles these documents daily: signing payment vouchers, checking supplier invoices against deliveries and approving credit notes for returned goods. Knowing what each document is, who issues it and which book it is recorded in helps prevent errors, fraud and disputes with suppliers and customers. Example: the stores supervisor at a teachers' training college in Moiben checks every supplier invoice against the delivery note before passing it to accounts for entry in the purchases journal.

Source documents

Source documents are the original written or electronic records that provide evidence that a transaction took place and give its details. No entry should be made in the books without a source document, because it is the proof auditors and KRA rely on. They are numbered, dated, filed and kept for at least five years. Example: a till receipt, a supplier's invoice and an M-Pesa confirmation message are all source documents.

• Purpose: They prove that a transaction happened and show its date, parties and amount.
• Basis for entries: Each book of original entry is written up from a particular source document.
• Internal control: Pre-numbered documents make missing or duplicated transactions easy to spot.
• Audit trail: They allow any ledger figure to be traced back to its origin.
• Examples: Receipts, invoices, credit notes, debit notes, payment vouchers, cheque counterfoils, bank slips and petty cash vouchers.

Journal

A journal is a book in which transactions are recorded in date order, showing the accounts to be debited and credited and the amount, before they are posted to the ledger. The word comes from the French for "day", since entries are made day by day. In a general journal each entry also carries a short explanation called a narration. Example: a hotel records the purchase of a coffee machine on credit in its journal as debit Equipment, credit the supplier, with the narration "Purchase of coffee machine on credit, invoice 2214".

• Date column: The date of the transaction.
• Particulars: The account debited, then the account credited, indented.
• Folio: The ledger page to which the entry is posted.
• Debit and credit amount columns: Equal amounts on each side.
• Narration: A brief explanation of the transaction.

Books of original entry

Books of original entry, also called books of prime entry, are the books in which transactions are first recorded from source documents before being posted to the ledger. Grouping similar transactions in separate books, such as all credit sales in one book, saves time because the totals can be posted to the ledger in one entry. Example: a busy restaurant records hundreds of cash sales in its cash book each day and posts only the daily total to the sales account.

• Chronological order: Entries are made in date order as transactions happen.
• Specialisation: Each book records one type of transaction.
• Source for the ledger: Totals and individual entries are posted from them to ledger accounts.
• Division of work: Different clerks can keep different books at the same time.
• Early error detection: Mistakes can be found before figures reach the ledger.

Receipt

A receipt is a document issued by the person or business receiving money, acknowledging that payment has been received. The business keeps a copy (or the counterfoil) as evidence of cash received, and the payer keeps the original as proof of payment. Receipts are the source for entries in the cash receipts journal or the receipts side of the cash book. In Kenya, receipts for sales by VAT-registered businesses are generated through KRA's eTIMS system. Example: a hotel issues a receipt for Ksh 12,500 to a guest who settles a dinner bill in cash.

• Receipt number: Pre-printed or system-generated serial number.
• Date: When payment was received.
• Payer's name: Who paid.
• Amount in figures and words: To prevent alteration.
• Purpose and method of payment: What the payment was for and whether by cash, card, cheque or mobile money.
• Signature: Of the cashier who received the money.

Invoice

An invoice is a document sent by a seller to a buyer when goods or services are supplied on credit, listing what was supplied and the amount due. For the seller it is the source for the sales journal; for the buyer it is the source for the purchases journal. Trade discount is deducted on the invoice itself, while VAT is added.

Example: a wholesaler supplies a hotel with 20 kg of beef at Ksh 650 per kg and 50 kg of rice at Ksh 180 per kg, allows 5% trade discount and charges VAT at 16%.

Gross value = (20 × 650) + (50 × 180)
Gross value = 13,000 + 9,000
Gross value = Ksh 22,000

Trade discount = 5% × 22,000
Trade discount = Ksh 1,100

Net value = 22,000 - 1,100
Net value = Ksh 20,900

VAT = 16% × 20,900
VAT = Ksh 3,344

Invoice total = 20,900 + 3,344
Invoice total = Ksh 24,244

Credit note

A credit note is a document issued by a seller to a buyer reducing the amount the buyer owes. It is issued when goods are returned because they are damaged, wrong or not ordered, when the buyer has been overcharged, or when an allowance is agreed. It is usually printed in red to tell it apart from an invoice. For the seller it is the source for the returns inwards journal; for the buyer it is the source for the returns outwards journal. Example: a bakery issues a credit note for Ksh 3,600 to a restaurant that returned 30 stale loaves charged at Ksh 120 each.

• Credit note number and date: For reference.
• Original invoice number: The invoice being reduced.
• Reason for credit: Returns, overcharge or allowance.
• Details of goods: Quantity, unit price and value credited.
• Effect: Reduces the debtor's balance in the seller's books and the creditor's balance in the buyer's books.

Debit note

A debit note is a document sent by a buyer to a seller requesting a reduction in the amount owed, for example when goods are returned or the buyer was overcharged. It informs the supplier that the buyer has debited (reduced) the supplier's account and asks for a matching credit note. A seller may also issue a debit note to a customer to increase an amount that was undercharged on an invoice. Example: a hotel returns 10 crates of soda delivered in error and sends the distributor a debit note for Ksh 9,600.

• Debit note number and date: For reference.
• Supplier's name: To whom it is sent.
• Invoice reference: The invoice in question.
• Reason: Goods returned, damaged or overcharged.
• Amount: The value of the reduction requested.

Payment voucher

A payment voucher is an internal document that authorises and supports a payment made by the business. It is prepared by the accounts office, attached to the supporting invoice or bill, checked and approved by an authorised officer, and signed by the payee on receipt of payment. It is the source for entries in the cash payments journal or the payments side of the cash book, and is especially important in public institutions such as county offices and hospitals. Example: before paying a gas supplier Ksh 18,000, a hospital catering department prepares a payment voucher approved by the hospital administrator.

• Voucher number and date: For reference and filing.
• Payee: The person or firm being paid.
• Details and supporting documents: What is being paid for, with invoice numbers attached.
• Amount and account code: The sum and the expense or creditor account to be debited.
• Authorisation signatures: Prepared by, checked by and approved by.
• Payee's acknowledgement: Signature or payment reference showing the money was received.

4.1.1 Identify Books of Original Entry

Books of original entry are the first point at which transactions are recorded before being posted to the ledger. In the food and beverage industry they capture every sale, purchase, return, payment and receipt in date order, giving a complete record that is essential for accurate accounts, cost control and stock control. Each book records one type of transaction from its own source document. Example: a lakeside hotel near Marigat keeps a sales journal for conference clients, a purchases journal for suppliers and a petty cash book at the front office.

Sales journal

The sales journal (sales day book) records credit sales of goods or services, written up from copies of the sales invoices issued. Cash sales are not entered here. Each credit customer's account in the sales ledger is debited with the individual invoice, and the total for the period is credited to the sales account.

Example: a caterer's sales journal for June shows the following credit sales.

• Lunch for a county office workshop: Ksh 84,000.
• Wedding catering for a private client: Ksh 156,000.
• Staff meals for a building contractor: Ksh 37,500.

Total credit sales = 84,000 + 156,000 + 37,500
Total credit sales = Ksh 277,500, credited to the sales account.

Purchases journal

The purchases journal (purchases day book) records credit purchases of goods meant for resale or for use in production, such as food and beverage stock, written up from suppliers' invoices. Each supplier's account is credited with the invoice amount and the total is debited to the purchases account. Credit purchases of non-current assets, such as a cooker, go to the general journal instead. Example: a restaurant records credit invoices from its butcher, greengrocer and dairy in the purchases journal each day.

Cash receipts journal

The cash receipts journal records all money received by the business, whether in cash, by cheque, card or mobile money, written up from receipts, till rolls and bank slips. It typically has columns for discount allowed, debtors, cash sales and other receipts. Many businesses combine it with the cash payments journal in a two or three column cash book. Example: a coffee house enters each day's till total and every payment from corporate customers in its cash receipts journal.

Cash payments journal

The cash payments journal records all money paid out, by cash, cheque, bank transfer or mobile money, written up from payment vouchers and cheque counterfoils. It usually has columns for discount received, creditors, purchases and other payments, and each payment is posted to the debit of the account concerned. Example: a lodge records payments for wages, electricity and supplier accounts in its cash payments journal.

Petty cash book

The petty cash book records small, frequent cash payments such as transport, cleaning materials and minor repairs, so that the main cash book is not filled with small items. Most businesses use the imprest system: the petty cashier starts with a fixed float, pays out against petty cash vouchers and at the end of the period is reimbursed exactly the amount spent, restoring the float. Analysis columns show spending under each heading.

Example: a guest house in Laare has a petty cash imprest of Ksh 10,000. During the week it spends Ksh 2,500 on fuel, Ksh 1,800 on cleaning materials, Ksh 650 on postage, Ksh 1,200 on staff tea and Ksh 1,350 on local transport.

Total spent = 2,500 + 1,800 + 650 + 1,200 + 1,350
Total spent = Ksh 7,500

Balance in hand = 10,000 - 7,500
Balance in hand = Ksh 2,500

Reimbursement = Imprest - Balance in hand
Reimbursement = 10,000 - 2,500
Reimbursement = Ksh 7,500, restoring the float to Ksh 10,000.

General journal

The general journal records transactions that do not belong in any other book of original entry. These include opening entries when a business starts, credit purchase or sale of non-current assets, correction of errors, transfers between accounts, adjustments such as depreciation and bad debts, and closing entries at the year end. Each entry shows the debit, the credit and a narration. Example: a hotel writes off a guest's unpaid bill of Ksh 14,000 as a bad debt through the general journal.

Returns inwards journal

The returns inwards journal (sales returns journal) records goods returned by credit customers to the business, written up from copies of credit notes issued. Each customer's account is credited and the total is debited to the returns inwards account, which is deducted from sales in the final accounts. Example: a bakery supplying hotels records stale bread returned by a hotel and the credit note it issued in its returns inwards journal.

Returns outwards journal

The returns outwards journal (purchases returns journal) records goods returned by the business to its credit suppliers, written up from credit notes received or debit notes sent. Each supplier's account is debited and the total is credited to the returns outwards account, which is deducted from purchases in the final accounts. Example: a restaurant returns a case of spoilt yoghurt to its dairy supplier and records the Ksh 4,200 credit note in its returns outwards journal.

Characteristics of books of original entry

• Chronological recording: Transactions are entered in the order they occur, giving a clear audit trail.
• Supported by documents: Each entry is backed by a source document.
• Specialisation: Each book handles one type of transaction, which keeps records organised.
• Basis for ledger posting: Entries are posted from them to the ledger accounts.
• Error detection: Mistakes can be found early, before ledger posting.

Importance in food and beverage management

• Cost control: Accurate recording of purchases and sales helps monitor food costs and wastage.
• Cash flow monitoring: The cash journals show daily liquidity, needed for paying wages and suppliers.
• Regulatory compliance: They keep the records needed for VAT and income tax returns to KRA.
• Financial analysis: Totals support management reports on sales performance and stock turnover.
• Internal control: Giving different books to different staff separates duties and reduces fraud.

Chapter Summary

This chapter explored the essential concepts related to final books of accounts, beginning with the identification of books of original entry which serve as the primary source of financial data. It then detailed the preparation of journal accounts, emphasizing the systematic recording of financial transactions. The process was extended to the preparation of general journal accounts, highlighting their role in capturing non-routine transactions. The chapter further defined key terms associated with financial statements before guiding the preparation of the income statement, which summarizes revenues and expenses to determine profit or loss. Following this, it covered the preparation of the statement of financial position, presenting a snapshot of an entity’s assets, liabilities, and equity at a specific point in time. Lastly, the chapter clarified the purpose of final books of account as vital tools for financial reporting, decision-making, and compliance. Together, these topics provide a comprehensive foundation for understanding and preparing the final stages of accounting records.