Grade 7
Course ContentLedger/Cash book
Habari Mwanafunzi! Welcome to the Financial Control Room!
Ever wondered how your school's bursar keeps track of all the fees? Or how the owner of the local duka knows if they are making a profit or a loss? The secret isn't magic, it's good bookkeeping! Today, we are going to unlock two of the most powerful tools in business: the Ledger and the Cash Book. By the end of this lesson, you'll be able to track money like a pro!
Image Suggestion: A vibrant, colorful digital art illustration of a young Kenyan student standing confidently in front of a small, neat duka (shop). The student is holding a large book labeled 'My Business', with floating icons of Kenyan shillings, M-Pesa logos, and calculators around them. The style should be encouraging and modern.
The Ledger: The Big Book of Everything!
Think of the Ledger as a big, organized filing cabinet for a business. Every single item the business deals with gets its own special file, which we call an 'Account'. There's an account for cash, an account for the bank, an account for every customer who owes money (like Otieno), and an account for every supplier the business owes (like Wanjiru's Wholesalers).
The main purpose of the ledger is to group all transactions of a similar nature in one place. Each account in the ledger is usually shaped like the letter 'T', which is why we call it a T-Account.
Account Name Here
____________________|_____________________
Debit (Dr.) Side | Credit (Cr.) Side
(Receiving Side) | (Giving Side)
|
|
|
|
- Debit (Dr): This is the left side. For assets (like Cash), a debit means an increase. Think of it as what comes IN.
- Credit (Cr): This is the right side. For assets (like Cash), a credit means a decrease. Think of it as what goes OUT.
The Cash Book: The Money Manager!
Now, the Cash Book is a special kind of book. It's the superstar of money management! Why? Because it's both a book of original entry (where we first record cash transactions) AND it acts as the Cash and Bank accounts in the ledger. It saves us a lot of work!
Imagine your M-Pesa statement. It shows all the money you received and all the money you sent. A Cash Book does the same for a business, but it often tracks both physical cash and money in the bank.
Let's look at a common type: the Two-Column Cash Book.
Dr. (Receipts) Cr. (Payments)
+-------+-------------+------+------+------+-------+-------------+------+------+------+
| Date | Particulars | Fol. | Cash | Bank | Date | Particulars | Fol. | Cash | Bank |
+-------+-------------+------+------+------+-------+-------------+------+------+------+
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
- Date: When the transaction happened.
- Particulars: A short description of the transaction (e.g., 'Sales', 'Rent').
- Folio (Fol.): A reference number to the corresponding ledger page.
- Cash Column: For all transactions involving physical cash (notes and coins).
- Bank Column: For all transactions going through the bank (cheques, M-Pesa, bank transfers).
Let's Get Practical: Maria's Tuck Shop
Maria is a student who starts a small tuck shop at the beginning of March to sell snacks. Let's help her record her first few transactions in a Two-Column Cash Book!
- March 1: Started business with KSh 5,000 of her savings as cash.
- March 2: Opened a bank account and deposited KSh 4,000 from the cash box.
- March 3: Bought sweets from a wholesaler for KSh 1,000 in cash.
- March 4: Sold snacks for KSh 800. The customer paid directly to her M-Pesa (bank).
- March 5: Paid a friend KSh 500 by cheque for helping design a poster.
Step-by-Step Recording:
Transaction 1 (March 1): Money is coming IN to the business as Cash. So, we DEBIT the Cash column.
Transaction 2 (March 2): This is a special one! Cash is going OUT (Credit Cash column), and money is coming IN to the bank (Debit Bank column). This is called a Contra Entry (C) because it's a transaction between cash and bank. We mark it with a 'C' in the folio column.
Transaction 3 (March 3): Money is going OUT as Cash to buy goods. So, we CREDIT the Cash column.
Transaction 4 (March 4): Money is coming IN from a sale, directly to the bank. So, we DEBIT the Bank column.
Transaction 5 (March 5): Money is going OUT of the bank to pay for an expense. So, we CREDIT the Bank column.
Here’s how Maria’s Cash Book looks:
Dr. Cr.
+---------+-------------+------+-------+-------+---------+-------------+------+-------+-------+
| Date | Particulars | Fol. | Cash | Bank | Date | Particulars | Fol. | Cash | Bank |
+---------+-------------+------+-------+-------+---------+-------------+------+-------+-------+
| Mar 1 | Capital | | 5,000 | | Mar 2 | Bank | C | 4,000 | |
| Mar 2 | Cash | C | | 4,000 | Mar 3 | Purchases | | 1,000 | |
| Mar 4 | Sales | | | 800 | Mar 5 | Poster Exp. | | | 500 |
| | | | | | | | | | |
Image Suggestion: A close-up shot of a neatly handwritten cash book on a wooden desk. Next to it is a smartphone displaying an M-Pesa confirmation message, a few Kenyan shilling notes, and a calculator. The image should look realistic and relatable to a student's business venture.
Balancing the Cash Book: Finding Out What's Left!
At the end of a period, Maria needs to know how much money she has left in cash and in the bank. This is called balancing the account. Let's do it for her!
- Total the columns: Add up all the numbers in each of the four money columns.
- Dr Cash: 5,000
- Dr Bank: 4,000 + 800 = 4,800
- Cr Cash: 4,000 + 1,000 = 5,000
- Cr Bank: 500
- Find the difference: For each account (Cash and Bank), subtract the smaller total from the bigger total.
- Cash: 5,000 (Dr) - 5,000 (Cr) = 0. Oh! Maria has no physical cash left.
- Bank: 4,800 (Dr) - 500 (Cr) = 4,300. She has KSh 4,300 in the bank.
- Enter the Balance: This difference is the 'Balance carried down' (bal c/d). You write it on the side with the lower total to make both sides equal.
- Bring Down the Balance: The 'Balance brought down' (bal b/d) is written on the opposite side, below the totals, to start the next period. This is the opening balance for April.
Here is the final, balanced Cash Book:
Dr. Cr.
+---------+-----------------+------+-------+-------+---------+-----------------+------+-------+-------+
| Date | Particulars | Fol. | Cash | Bank | Date | Particulars | Fol. | Cash | Bank |
+---------+-----------------+------+-------+-------+---------+-----------------+------+-------+-------+
| Mar 1 | Capital | | 5,000 | | Mar 2 | Bank | C | 4,000 | |
| Mar 2 | Cash | C | | 4,000 | Mar 3 | Purchases | | 1,000 | |
| Mar 4 | Sales | | | 800 | Mar 5 | Poster Exp. | | | 500 |
| | | | | | Mar 31 | Balance c/d | | 0 | 4,300 |
+---------+-----------------+------+-------+-------+---------+-----------------+------+-------+-------+
| | TOTAL | | 5,000 | 4,800 | | TOTAL | | 5,000 | 4,800 |
+---------+-----------------+------+-------+-------+---------+-----------------+------+-------+-------+
| Apr 1 | Balance b/d | | 0 | 4,300 | | | | | |
+---------+-----------------+------+-------+-------+---------+-----------------+------+-------+-------+
You've Got This!
Awesome work! You've just learned the fundamentals of how businesses control their money. The Cash Book gives you a clear picture of your cash flow, and the Ledger helps organize every aspect of the business.
Remember, this skill is not just for big companies. You can use it to manage your own pocket money, a school club's funds, or your future business empire. Keep practicing, and you'll be a financial wizard in no time! Kazi nzuri!
Habari Mwanafunzi! Welcome to the Financial Control Room!
Ever wondered how the owner of the school canteen or a successful boda boda operator knows if they are making a profit or a loss? They don't just guess! They have a system for tracking every single shilling that comes in and goes out. Today, we are going to learn about two of the most important tools in their toolbox: the Ledger and the Cash Book. Think of yourself as a financial detective, and these are your primary tools for solving the mystery of money!
The Ledger: The Business's Big Filing Cabinet
Imagine a big, organized cabinet. Each drawer is labeled: "Cash," "Money from Sales," "Money Owed to KPLC," "Office Furniture," and so on. This entire cabinet is the Ledger. It's the main book of accounts where all the financial information of a business is stored in a summarized form.
Each "drawer" in our ledger is called an Account. To keep things neat and universal, we draw each account in a 'T' shape.
- The left side is called the Debit side (often written as Dr.).
- The right side is called the Credit side (often written as Cr.).
A simple rule to remember for now:
- You DEBIT what comes INTO the business (like cash received).
- You CREDIT what goes OUT of the business (like cash paid).
Let's see what a T-Account looks like:
Account Name (e.g., Cash)
_________________|___________________
Debit (Dr) | Credit (Cr)
(Receipts Side) | (Payments Side)
|
|
|
Example Scenario: Let's say your friend Juma starts a small business selling smokies at the school gate. His uncle gives him Ksh 1,000 as starting capital. Two accounts are affected: the 'Cash' account (because the business now has cash) and the 'Capital' account (the money Juma invested).
Cash is coming IN, so we Debit the Cash Account. The money came FROM Capital, so we Credit the Capital Account.
The Cash Book: Your Daily Money Diary
While the Ledger is the big filing cabinet, the Cash Book is the special, most-used notebook that deals ONLY with cash and bank transactions. It's like your personal M-Pesa statement – it shows money in (receipts) and money out (payments) as they happen.
The Cash Book is unique because it is both a book of original entry (where you first record transactions) and a ledger account itself. It’s a 2-in-1 tool!
The most common type you'll use is the Two-Column Cash Book, which has columns for both Cash in hand and Money at the Bank.
Image Suggestion: An illustration of a friendly Kenyan shopkeeper at her duka, smiling. On the counter is a neat, open two-column cash book, a calculator, and an M-Pesa "Lipa na M-Pesa" sign. The style is colorful and educational.
The layout looks like this. Notice it's just a big T-account with more details!
DEBIT SIDE (Receipts - Money In) CREDIT SIDE (Payments - Money Out)
+------+---------+----+------+------+ | +------+---------+----+------+------+
| Date | Details | F. | Cash | Bank | | | Date | Details | F. | Cash | Bank |
+------+---------+----+------+------+ | +------+---------+----+------+------+
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The Tricky Part Made Easy: Contra Entries!
Sometimes, you just move money between your pocket (Cash) and your bank account. No money has left the business. This is called a Contra Entry. It's recorded on both sides of the cash book to show the movement.
- Depositing cash into the bank: Your Cash in hand goes down (Credit the Cash column), and your Bank balance goes up (Debit the Bank column).
- Withdrawing cash from the bank: Your Bank balance goes down (Credit the Bank column), and your Cash in hand goes up (Debit the Cash column).
We mark these special entries with a 'C' in the Folio (F.) column.
Real-World Example: Mama Benta, a vegetable vendor, goes to her Co-op Bank agent. She takes Ksh 5,000 from her cash box and deposits it into her business bank account. In her cash book, she will CREDIT the Cash column (cash is going out of her hand) and DEBIT the Bank column (money is coming into her bank).
Let's Do It! Recording and Balancing a Cash Book
Let's help a student named Akinyi track her small tuck-shop finances for a few days.
Transactions for "Akinyi's Treats":
- Jan 1: Started business with Ksh 10,000 cash.
- Jan 2: Opened a bank account and deposited Ksh 8,000.
- Jan 3: Bought goods for Ksh 1,500 in cash.
- Jan 4: Sold goods for Ksh 2,000 and received the money via M-Pesa (into the bank).
- Jan 5: Paid rent of Ksh 500 using a cheque from the bank.
Here is how Akinyi's Two-Column Cash Book would look after recording these transactions:
Dr. (Receipts) Cr. (Payments)
+-------+-------------+---+--------+--------+ | +-------+-------------+---+--------+--------+
| Date | Details | F | Cash | Bank | | | Date | Details | F | Cash | Bank |
+-------+-------------+---+--------+--------+ | +-------+-------------+---+--------+--------+
| Jan 1 | Capital | | 10,000 | | | | Jan 2 | Bank | C | 8,000 | |
| Jan 2 | Cash | C | | 8,000 | | | Jan 3 | Purchases | | 1,500 | |
| Jan 4 | Sales | | | 2,000 | | | Jan 5 | Rent | | | 500 |
| | | | | | | | | | | | |
Now for the final step: Balancing the book to see how much money Akinyi has at the end.
Step 1: Total both sides for each column.
Debit Cash Total = 10,000
Credit Cash Total = 8,000 + 1,500 = 9,500
Debit Bank Total = 8,000 + 2,000 = 10,000
Credit Bank Total = 500
Step 2: Find the difference (the balance) and put it on the smaller side.
Cash Balance = 10,000 - 9,500 = 500
Bank Balance = 10,000 - 500 = 9,500
This closing balance is called 'Balance carried down' or 'Balance c/d'.
Step 3: Put the balance on the smaller side and total up. The totals should now match.
Step 4: Bring the balance down ('Balance b/d') to the opposite side for the start of the next period.
Here is the final, balanced Cash Book. Look carefully!
Dr. (Receipts) Cr. (Payments)
+-------+-------------+---+--------+--------+ | +-------+-------------+---+--------+--------+
| Date | Details | F | Cash | Bank | | | Date | Details | F | Cash | Bank |
+-------+-------------+---+--------+--------+ | +-------+-------------+---+--------+--------+
| Jan 1 | Capital | | 10,000 | | | | Jan 2 | Bank | C | 8,000 | |
| Jan 2 | Cash | C | | 8,000 | | | Jan 3 | Purchases | | 1,500 | |
| Jan 4 | Sales | | | 2,000 | | | Jan 5 | Rent | | | 500 |
| | | | | | | | Jan 5 | Balance c/d | | 500 | 9,500 |
+-------+-------------+---+--------+--------+ | +-------+-------------+---+--------+--------+
| | TOTALS | | 10,000 | 10,000 | | | | TOTALS | | 10,000 | 10,000 |
+-------+-------------+---+--------+--------+ | +-------+-------------+---+--------+--------+
| Jan 6 | Balance b/d | | 500 | 9,500 | | | | | | | |
Amazing! By looking at the 'Balance b/d', Akinyi knows exactly how much money she has to start the next period: Ksh 500 in cash and Ksh 9,500 in the bank. She is in control of her finances!
You've Got This!
Congratulations! You've just learned the fundamentals of how businesses track and control their most important asset: cash. Understanding the Ledger and the Cash Book is a superpower. It allows you to understand the health of a business and make smart decisions.
Don't worry if it seems like a lot at first. Practice is key. Try creating a simple cash book for your own weekly pocket money. Track what you receive and what you spend. You'll be a financial guru in no time!
Unlocking the Secrets of Business Money: Your Guide to the Ledger & Cash Book!
Habari Mwanafunzi! Ever wondered how your school canteen owner knows if they are making a profit? Or how a matatu owner tracks all the money from fares and fuel costs? They don't just keep it in their heads! They use special books to record everything. Today, we are going to learn about two of the most important books in any business: The Ledger and the Cash Book. Think of them as the official diary for a business's money. Let's dive in!
Image Suggestion: [A vibrant, optimistic illustration of a young Kenyan student looking at a simplified, glowing ledger book. In the background, there are symbols of small Kenyan businesses like a matatu, a small farm with maize, and a duka (kiosk). The style should be colourful and educational.]
The Ledger: The King of All Account Books
The Ledger is the main or principal book of accounts where all the business transactions are recorded in a summarised and classified form. If the daily records (Journals) are the rough notes, the Ledger is the final, neatly organised textbook!
Each item of the business, like 'Sales', 'Rent', 'Furniture', or a customer like 'Peter Otieno', gets its own page or "account" in the ledger. This helps the business owner see all the transactions related to one thing in one place.
The most common format for an account in the ledger is the 'T' account. It looks just like the letter T!
Understanding the 'T' Account
The 'T' account has two sides:
- The left side is called the Debit (Dr.) side.
- The right side is called the Credit (Cr.) side.
Here's a simple rule to remember what goes where, using the word DEAL-CLIP:
- DEAL: Debits increase Expenses, Assets, and Losses.
- CLIP: Credits increase Liabilities, Income, and Profit (Capital).
A Simple 'T' Account for Cash
+--------------------------------------+
| Cash Account |
+------------------+-------------------+
| Debit (Dr.) | Credit (Cr.) |
| (Money Coming IN)| (Money Going OUT) |
+------------------+-------------------+
| | |
| | |
| | |
+------------------+-------------------+
The Cash Book: The Money-In, Money-Out Specialist
Now, let's talk about the most active account in any business: Cash! So many transactions involve cash or the bank (like using M-Pesa or a cheque). Because it's so busy, it gets its own special book called the Cash Book.
A Cash Book is unique because it is both a book of original entry (like a journal) AND a part of the ledger. It's a 2-in-1 superstar! It records all cash receipts (money in) and all cash payments (money out).
Types of Cash Books
- Single Column Cash Book: Records only cash transactions. Perfect for a very small duka.
- Two-Column Cash Book: Has columns for both Cash and Bank transactions. This is the most common one!
- Three-Column Cash Book: Includes Cash, Bank, and a 'Discount' column for when businesses give or receive discounts for early payment.
Let's Get Practical: Wanjiku's Uniform Shop
To really understand this, let's help a business owner, Wanjiku, who runs a school uniform shop. We will create a Two-Column Cash Book for her.
Scenario: Wanjiku's Transactions for the first week of June.
- June 1: Started with Cash in hand KES 15,000 and Cash at Bank KES 50,000.
- June 2: Sold uniforms for cash KES 5,000.
- June 3: Paid a supplier, 'Kitenge Fashions', by cheque KES 20,000.
- June 4: Paid the shop's rent in cash KES 8,000.
- June 5: Deposited KES 3,000 cash into the business bank account. (This is a Contra Entry - a transfer between cash and bank).
- June 6: Received a cheque from 'Nairobi Academy' school for a past order, KES 10,000.
Wanjiku's Two-Column Cash Book
The left side (Debit) is for Receipts (money in). The right side (Credit) is for Payments (money out).
Dr. (Receipts) Cr. (Payments)
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| Date | Details |LF| Cash | Bank || Date | Details |LF| Cash | Bank |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| June 1 | Balance b/d | | 15,000 | 50,000 || June 3 | Kitenge Fashions | | | 20,000 |
| June 2 | Sales | | 5,000 | || June 4 | Rent | | 8,000 | |
| June 5 | Cash (Contra) |C | | 3,000 || June 5 | Bank (Contra) |C | 3,000 | |
| June 6 | Nairobi Academy | | | 10,000 || June 7 | Balance c/d | | 14,000 | 43,000 |
| | | | | || | | | | |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| | TOTAL | | 20,000 | 63,000 || | TOTAL | | 25,000 | 63,000 |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| June 8 | Balance b/d | | 14,000 | 43,000 || | | | | |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
* LF = Ledger Folio (Page number in the ledger)
* b/d = brought down (the opening balance)
* c/d = carried down (the closing balance)
* C = Contra Entry
Image Suggestion: [A clear photo of a neatly handwritten two-column cash book on a ledger paper, with a calculator and a pen beside it. The entries should match the Wanjiku example. The background is a wooden desk.]
Balancing the Cash Book (The Math Part!)
At the end of the week, Wanjiku needs to "balance" her cash book to see how much money she has. It's simple arithmetic!
Step 1: Total the Debit and Credit sides for each column separately.
// CASH COLUMN
Debit Total (Receipts) = 15,000 (opening) + 5,000 (sales) = 20,000
Credit Total (Payments) = 8,000 (rent) + 3,000 (bank deposit) = 11,000
// BANK COLUMN
Debit Total (Receipts) = 50,000 (opening) + 3,000 (cash deposit) + 10,000 (debtor) = 63,000
Credit Total (Payments) = 20,000 (supplier) = 20,000
Step 2: Find the difference (the balance). The balance is what is 'left over'.
// CASH BALANCE
Cash Balance = Debit Total - Credit Total
= 20,000 - 11,000
= KES 9,000 (Oops, let's re-check the example table... Ah, the totals in the table are incorrect. Let's fix the calculation and the table!)
-- Let's recalculate and fix the table. My apologies, a good teacher always double-checks! --
**REVISED CALCULATION & TABLE:**
Let's re-do Wanjiku's transactions properly.
* June 1: Balance b/d: Cash 15,000 | Bank 50,000 (Debit side)
* June 2: Sales: Cash 5,000 (Debit side)
* June 3: Kitenge Fashions: Bank 20,000 (Credit side)
* June 4: Rent: Cash 8,000 (Credit side)
* June 5: Contra - Deposit to Bank: Bank 3,000 (Debit side) | Cash 3,000 (Credit side)
* June 6: Nairobi Academy: Bank 10,000 (Debit side)
**Step 1 (Revised): Total the sides**
CASH: Debit Side = 15,000 + 5,000 = 20,000
CASH: Credit Side = 8,000 + 3,000 = 11,000
BANK: Debit Side = 50,000 + 3,000 + 10,000 = 63,000
BANK: Credit Side = 20,000
**Step 2 (Revised): Find the balance**
Cash Balance = 20,000 - 11,000 = KES 9,000
Bank Balance = 63,000 - 20,000 = KES 43,000
**Step 3: Enter the balance on the smaller side and total up.**
This balance is called 'Balance carried down' (c/d). You write it on the last day of the period (e.g., June 7).
**Step 4: Bring the balance down to the opposite side for the start of the next period.**
This becomes the 'Balance brought down' (b/d) for June 8.
**CORRECTED TABLE:**
Dr. (Receipts) Cr. (Payments)
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| Date | Details |LF| Cash | Bank || Date | Details |LF| Cash | Bank |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| June 1 | Balance b/d | | 15,000 | 50,000 || June 3 | Kitenge Fashions | | | 20,000 |
| June 2 | Sales | | 5,000 | || June 4 | Rent | | 8,000 | |
| June 5 | Bank (Contra) |C | | 3,000 || June 5 | Cash (Contra) |C | 3,000 | |
| June 6 | Nairobi Academy | | | 10,000 || June 7 | Balance c/d | | 9,000 | 43,000 |
| | | | | || | | | | |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| | TOTAL | | 20,000 | 63,000 || | TOTAL | | 20,000 | 63,000 |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
| June 8 | Balance b/d | | 9,000 | 43,000 || | | | | |
+----------+--------------------+--+--------+--------++----------+--------------------+--+--------+--------+
There we go! Perfect. See how both sides now have the same total? This means it is balanced. Now Wanjiku knows she has KES 9,000 in her cash box and KES 43,000 in her bank account to start the next week.
So, Why Is This So Important?
Learning how to use a Ledger and a Cash book is a superpower for anyone in business! It helps you to:
- Track every shilling: You know exactly where your money is coming from and where it is going.
- Prevent theft: When every coin is accounted for, it's harder for money to disappear.
- Make smart decisions: Can Wanjiku afford a new sewing machine? She can look at her cash book balance to decide!
- Get loans: Banks like Safaricom's M-Shwari or a bank will want to see your organised records before giving you a loan.
- Pay the right taxes: The KRA (Kenya Revenue Authority) requires businesses to keep proper records.
You've done an amazing job today. Understanding the Ledger and Cash book is a fundamental skill in business. Keep practicing, and you'll be on your way to becoming a business guru! Kazi nzuri!
Pro Tip
Take your own short notes while going through the topics.
