Cash management is a critical function in cooperative societies, where maintaining accurate and up-to-date records of all cash transactions ensures transparency, accountability, and financial control. Preparing cash books is essential for cooperative managers to monitor cash inflows and outflows, preventing fraud and mismanagement. This chapter equips cooperative management professionals with skills to prepare and maintain different types of cash books, focusing on formats commonly used in Kenya's cooperative sector. Understanding classification of cash receipts further enhances financial reporting and decision-making.

4.1 Cash books

Cash books are specialized accounting records that combine the functions of a journal and ledger to record all cash receipts and payments. In cooperatives, cash books provide a clear and chronological record of cash transactions, facilitating effective cash flow management for activities such as member contributions, loan disbursements, and operational expenses. Accurate cash books enable managers to track daily cash positions and reconcile with bank statements, thus supporting sound financial governance.

4.1.1 Two column cashbook

The two column cashbook is a widely used format in cooperative societies to record both cash and bank transactions. This cashbook has two money columns on both the debit and credit sides: one for cash and one for bank, enabling simultaneous tracking of cash in hand and cash at bank. This format simplifies recording transactions, especially when cooperatives handle deposits, withdrawals, and payments through both cash and bank accounts.

Structure and layout of the two column cashbook

The two column cashbook is divided into two main parts: the debit side (receipts) and the credit side (payments). Each side contains two columns for amounts, one for cash and one for bank. This allows the cooperative to distinguish between physical cash transactions and bank-related movements while maintaining a single record.

• Date column records the date of each transaction, ensuring chronological order.
• Particulars column describes the nature or source of the transaction, such as member deposits or loan repayments.
• Cash column on the debit side shows cash received, and on the credit side, cash paid out.
• Bank column on the debit side records amounts deposited into bank accounts, while on the credit side, it shows bank withdrawals or payments made directly from the bank.

Recording transactions in the two column cashbook

In practice, when a cooperative receives cash from members, the amount is entered on the debit side under the cash column with a description such as "Member contributions." If the cooperative deposits cash into its bank account, the amount is recorded on the credit side under the cash column and simultaneously on the debit side under the bank column, reflecting the transfer from cash in hand to bank.

Payments made directly from the bank, such as supplier payments, are entered on the credit side under the bank column. Meanwhile, cash payments for petty expenses are recorded on the credit side under the cash column.

Balancing and totaling the two column cashbook

At the end of a financial period, the cooperative manager calculates the totals of the cash and bank columns on both debit and credit sides. The balances are determined by subtracting the total credits from the total debits in each column. These balances represent the cash in hand and bank balances, which should agree with physical cash counts and bank statements.

• Balancing the cash column ensures that the physical cash matches the recorded cash transactions.
• Balancing the bank column helps detect discrepancies in bank transactions or errors in recording.
• Regular balancing supports internal controls and timely detection of fraud or misstatements.

Advantages of using the two column cashbook in cooperatives

The two column cashbook offers cooperative managers a consolidated view of cash and bank transactions, reducing the need for separate records. It improves accuracy by recording transfers between cash and bank accounts within the same book. This cashbook format supports prompt reconciliation and financial reporting, which is crucial in member-driven institutions such as SACCOs and agricultural cooperatives.

4.1.2 Three column cashbook

The three column cashbook extends the two column cashbook by adding a third money column on each side for discounts. It lets a business record its cash, its bank balance and the discounts it allows or receives in one book, instead of keeping a separate discount record. Example: a hardware store in Eldoret that sells to contractors and buys from several suppliers uses a three column cashbook so that every cash sale, cheque payment and settlement discount is captured on the day it happens.

Structure and layout of the three column cashbook

The book keeps the debit side for receipts and the credit side for payments, as in the two column cashbook. Each side now has three money columns, placed in a fixed order so that entries are easy to trace.

• Date and particulars columns record when each transaction happened and who it involved or what it was for, exactly as in the two column cashbook.
• Folio column gives the ledger account page or number where the other side of the entry is posted, which makes cross-checking quick.
• Discount allowed column on the debit side records discounts the business gives to customers who settle their accounts promptly.
• Discount received column on the credit side records discounts the business obtains from suppliers when it pays them promptly.
• Cash column on each side records cash received (debit) and cash paid (credit).
• Bank column on each side records money paid into the bank (debit) and payments or withdrawals from the bank (credit).

The discount columns are memorandum columns. They are used only to collect totals for posting to the ledger and are never included when the cash and bank balances are calculated. How discounts are defined and calculated is covered under topic 4.4.

Recording transactions in the three column cashbook

Each transaction is entered on the correct side and in the correct column. Transfers between cash and bank, known as contra entries, appear on both sides of the same book and are marked with the letter C in the folio column.

Example: the hardware store starts the week with cash of Ksh 40,000 and a bank balance of Ksh 120,000.

• A customer settles an account by paying Ksh 19,500 in cash after being allowed a discount of Ksh 500. Cash column (debit) Ksh 19,500 and discount allowed column (debit) Ksh 500.
• The owner deposits Ksh 30,000 of cash into the bank. This is a contra entry: cash column (credit) Ksh 30,000 and bank column (debit) Ksh 30,000.
• The store pays a supplier by cheque Ksh 47,500 after receiving a discount of Ksh 2,500. Bank column (credit) Ksh 47,500 and discount received column (credit) Ksh 2,500.

Balancing the three column cashbook

Balancing is done separately for the cash and bank columns, while the discount columns are only totalled. The working below uses the example above.

Formula: balance = total debits − total credits

Cash column:
Debit total = 40,000 + 19,500 = Ksh 59,500
Credit total = Ksh 30,000
Balance = 59,500 − 30,000 = Ksh 29,500 cash in hand (debit balance)

Bank column:
Debit total = 120,000 + 30,000 = Ksh 150,000
Credit total = Ksh 47,500
Balance = 150,000 − 47,500 = Ksh 102,500 at bank (debit balance)

The discount allowed total (Ksh 500) and the discount received total (Ksh 2,500) are each posted once to their ledger accounts at the end of the period.

Procedure for balancing a three column cashbook:

1. Add the cash column on the debit side and write the total on a rough sheet. This shows the total cash that came into the business, including the opening balance.
2. Add the cash column on the credit side. This shows the total cash that went out of the business.
3. Subtract the credit total from the debit total to find the balance, and enter it on the side with the smaller total as "Balance c/d" so that both sides agree.
4. Repeat steps 1 to 3 for the bank column, keeping the two columns separate throughout.
5. Total the discount allowed column on the debit side and the discount received column on the credit side, without balancing them.
6. Bring the balances down on the opposite side as "Balance b/d" to open the next period, and compare the cash balance with a physical count and the bank balance with the bank statement.

Advantages of the three column cashbook

By recording discounts in the same book as cash and bank movements, the business avoids duplicate records and reduces posting errors. The discount totals are ready for the ledger at period end, and the cash and bank balances can be checked quickly against the till and the bank statement.

4.1.3 Petty cashbook

Petty cashbooks are used to record small, routine cash expenses that do not require formal payment vouchers or cheque payments. In cooperatives, petty cashbooks track minor purchases like stationery, transport fares, or refreshments, maintaining control over these frequent but low-value payments.

Purpose and benefits of maintaining a petty cashbook

The petty cashbook helps cooperative managers monitor small cash outflows without burdening the main cash book with numerous minor transactions. This separation streamlines accounting and ensures petty cash is used appropriately.

• It provides a detailed record of petty expenses for audit and accountability.
• Enhances internal controls by limiting petty cash disbursements to authorized personnel.
• Simplifies reimbursement procedures by summarizing petty cash usage.
• Prevents misuse of funds through regular reconciliation.
• Supports budgeting by identifying recurring small expenses.

Structure and format of the petty cashbook

The petty cashbook typically has columns for date, particulars, voucher number, and several expense categories tailored to cooperative needs. These categories may include transport, office supplies, postage, and miscellaneous expenses, enabling classification of payments for analysis.

• Date records when the petty cash was spent.
• Particulars describe the nature of the expense.
• Voucher number links each payment to an authorization or receipt.
• Expense columns categorize the payments for easier tracking.

Recording petty cash transactions

When petty cash is spent, the amount is entered under the relevant expense column with supporting documentation such as receipts or vouchers attached. At intervals, the petty cash custodian replenishes the petty cash fund by submitting a summary of expenses to the cooperative’s finance office.

This replenishment is recorded in the main cash book as a payment to petty cash, restoring the petty cash float to its original amount. Maintaining this float ensures continuous availability of funds for minor expenditures.

Reconciliation and control of petty cash

Regular reconciliation of the petty cashbook with the physical cash balance and receipts is essential to detect errors or irregularities. Cooperative managers should implement controls such as:

• Assigning custody of petty cash to a responsible officer.
• Limiting the petty cash float to a fixed amount.
• Requiring approval for disbursements.
• Conducting surprise checks.
• Documenting all transactions thoroughly.

Chapter Summary

This chapter explored the preparation and management of cash books, beginning with the two column cashbook which records both cash receipts and payments. It then examined the three column cashbook, an extension that includes bank transactions alongside cash dealings. The petty cashbook was discussed as a tool for tracking minor and routine expenses separately from the main cashbook. The classification of cash receipts was addressed to enable proper categorization for accurate financial reporting. Detailed procedures for recording cash receipts were outlined to ensure systematic and verifiable entries. The chapter also clarified the distinctions among cash discounts, trade discounts, and quantity discounts, highlighting their respective roles in financial transactions and accounting treatment. Understanding these components is essential for maintaining precise cash records and supporting overall financial accountability.