The cash book
This is a special ledger which is used to record cash and cheque transactions.
It contains only the cash in hand and cash at bank (i.e. cash and bank) accounts
Nominal ledger
This ledger is used to record business expenses and incomes (gains). It contains all the nominal accounts.
Private ledger
This ledger is used in recording private accounts i.e. confidential and valuable fixed assets and the personal accounts of the proprietors such as capital accounts and drawing accounts.
The general ledger
The general ledger contains all other accounts that are not kept in any other ledger e.g. buildings, furniture and stock accounts.

1. Personal accounts of debtors or creditors who do not arise out of sale or purchase of goods on credit are found in the general ledger e.g. debtors as a result of sale of fixed asset on credit and expense creditors.
2. Private accounts
   these are accounts that the business considers to be confidential and are not availed to everybody except the management and the owners.
   These accounts may be personal or impersonal.
   They include capital account, drawings accounts, trading, profit and loss accounts.

​The following are the main types of ledgers that are used to keep the various accounts
The sales ledger (Debtors ledger)

• This is the ledger in which accounts of individual debtors are kept.
• It is used to record the value of goods sold on credit and the customers to whom the credit sales are made, hence contains the personal names of the debtors.
• It is called a sales ledger because the accounts of debtors kept herein are as a result of sale of goods on credit. An account is kept for each customer to which is debited the value of credit sale. Payment made by the debtor are credited to the account and debited in the cash book.

Purchases ledger (creditors ledger)
The purchases ledger contains accounts of creditors i.e. contains the records of the value of goods bought on credit and the suppliers of such goods.
It is a record of the debts payable by the business due to credit purchases.
An account is kept for each creditor to the credit side of which is posted the value of.
Impersonal accounts
This category of ledger accounts includes all other accounts that are not personal in nature e.g. buildings, purchases, rent, sales and discounts received.
Impersonal accounts fall into two types

1. Real accounts
2. Nominal accounts

Real accounts:
These are accounts of tangible assets or property e.g. buildings, land, furniture, fittings, machinery, stock, cash (at bank and in hand) etc.
These accounts are also used to draw up the balance sheet.
Nominal account:
These are accounts of items that relate to gains and losses and whose balances at the end of the accounting period. 
All expenses, revenues, sales and purchases are hence nominal accounts.
The main business expenses include:
purchases, sales, returns, insurance, stationary, repairs, depreciation, heating, discount allowed, lighting interests, printing, wages, rent, rates and advertising.     
The value of losses is included in the same side as the expenses when drawing up the final accounts though it is not an expense.   
The income (revenues) include sales, returns, claims out, interest receivable, dividends receivable and commission receivable. Profit is usually categorised together with these incomes when drawing up the final accounts.

Many businesses handle few transactions, hence they have few records to keep. Their accounts can thus be kept in a single ledger referred to as the general ledger
As a business grows the volume of transactions increases. This single ledger, therefore, becomes very bulky with accounts and it becomes difficult to make reference to it.
In order to simplify the recording of transactions and facilitate reference to the accounts, ledger accounts are usually classified and each category kept in a special ledger.
NOTE
(i) Since many transactions are cash transactions which are normally recorded in the bank and cash accounts a need arises to remove them from the main/general ledger to a separate ledger called the cash book.
(ii)  The number of ledgers kept depends on the size of the business.
Classes of accounts
All accounts can be classified into either personal or impersonal accounts.
Personal accounts

• These are account of persons
• They relate to personal, companies or associations.
• They are mainly accounts of debtors and creditors.

NOTE: capital account is the proprietor’s personal account, showing the net worth of the business hence it is a personal account.
The account balances of these accounts are used to draw up the balance sheet.
In the ledger, the trial balance total is not affected.
Purpose of a trial balance
The purpose of a trial balance include:

• Checking the accuracy in the ledger accounts as to whether;
  • The rule of double entry has been adhered to or observed/ complied with.
  • There are arithmetical errors in the ledger accounts

1. Gives a summary of the ledger i.e. summary of the transactions which have taken place during a given period
2. Provide information (account balances) for preparing final accounts such as the trading account, profit and loss account and the balance sheet.
3. Test whether the ledger account balances have been posted to the right side of the trial balance.

Even when the trial balance totals are equal, it does not mean that there are no errors made in the ledgers. This is because there are some errors that do not affect the trial balance.
A trial balance only assures the book keeper that the total of debit entries is equal to total credit entries.
The errors that do not affect the trial balances are:

1. Error of total omission; This occurs when a transaction takes place and nothing about it is recorded in the books of accounts i.e. it is completely omitted such that neither a credit nor a debit entry is made in the ledgers.
2. Error of original entry; this occurs where both the debit and credit entries are made using similar but erroneous figures. As the wrong amount is recorded in the two accounts.
3. Error of commission; This occurs where double entry is completed but in the wrong persons accounts especially due to a confusion in names e.g. a debit entry of shs.2000 was made in Otieno’s account instead of Atieno’s account.
4. Compensating errors; these are errors whose effects cancel out e.g. over debiting debtors account by sh.300 and under debiting cash account by sh.300.
5. Complete reversal of entries; This occurs where the account to be debited is credited and the account to be credited is debited e.g. the sale of goods to Lydia on credit may be recorded as follows;
   Dr.sales a/c
   Cr.Lydius a/c  
   Instead of;
   Dr.Lydius a/c
   ​Cr.sales a/c
6. Error of principle; this is where a transaction is recorded in the wrong account of a different class from the correct one e.g. repairs of machinery was debited in the machinery instead of debiting the repairs account.

A trial balance is a statement prepared at a particular date showing all the debit balances on one column and all the credit balances on another column.
NOTE: A trial balance is not an account but merely a list of assets, expenses and losses on the left and capital liabilities and incomes (including profits) on the right.
The totals of a trial balance should agree if the double entry has been carried out correctly and there are no arithmetic errors both in the ledger as well as in the trial balance itself.
If the two sides of a trial balance are not equal, it means there is an error or errors either in the trial balance or in the ledger accounts or in both.

This is the total income received by the providers/owners of the factors of production in a given country over a given time period.
Terms used in national income

1. Gross Domestic Product (GDP). This is the total monetary value of all goods and services produced in a country during a particular year. Such goods and services must have been produced within the country.
2. Net Domestic Product (NDP). This is the GDP less depreciation. Depreciation is the loss in value of the assets such as machines used in the production of goods and services.
3. Gross National Product (GNP). This measures the total monetary value of all the goods and services produced by the people of a country regardless of whether they in or outside the country. It takes into account exports and imports. The difference between exports and imports is called net Factor Income from abroad. GNP therefore is the sum of GDP and net factor income from abroad.
4. Net National Product (NNP). This recognizes the loss in value of the capital used in the production of goods. Capital here refers to capital goods. NNP is the difference between GNP and the depreciation.
5. Per capita income. This is the average income per head per year in a given country. It is also the national income divided by the population of the country.

• This is the continuous movement of income between the households (providers of factors of production) and the firms (producers of goods and services).
• The factors of production are received from households.
• The firms pay the rewards of such factors to the households (expenditure to the firms and income to the households).
• The households in turn use the income to buy the goods and services produced by the firms (expenditure to households and income to firms).

Assumptions/features of circular flow of income

1. Existence of two sectors only. It is assumed that the economy has only two sectors that is households and firms. The households provide the factors of production while firms are involved in the production of goods and services.
2. Total spending by households. It is assumed that the households spend all their income on the goods and services produced by the firms i.e. no savings.
3. Total spending by the firms. It is assumed that the firms spend the money received from the sale of goods and services to pay for the rewards of production factors.
4. Lack of government intervention. The government does not influence how the firms and households carry out their activities. Such interventions are in the form of taxes, price controls among others.
5. Closed economy. Exports and imports do not exist in such an economy.

Factors affecting the circular flow of income

• The factors can either lead to increase in income and expenditure (injections) or lead to a reduction in the volume of flow (withdrawals).

The factors include the following:

1. Savings.  This takes place when the households do not spend all their income on the purchase of goods and services. This reduces the income to be received by firms hence savings is a withdrawal from the circular flow of income.
2. Taxation. Taxation reduces the amount of money available for spending therefore it is a withdrawal/leakage from the circular flow of income.
3. Government expenditure. The government may buy goods from the firms or provide subsidies. This will translate in to an injection into the circular flow of income.
4. Investments. When firms put more capital into the production, output will increase hence an increase in income (injection).
5. Imports. When goods and services are bought from other countries, money will be spent hence a reduction in the circular flow of income (withdrawal).
6. Exports. Through exports, a country is able to receive money from other countries (injections)

Injections

1. Investments
2. Government spending
3. Exports

Withdrawals

1. Savings
2. Taxation
3. Imports

Expenditure Approach
National income is arrived at summing expenditure on all final goods and services (that have reached the final stage of production). Such expenditure is divided into:

1. Expenditure on consumer goods ( C)
2. Expenditure on capital goods (I)
3. Expenditure by government (G)
4. Expenditure on net exports (X – M)

Therefore national income = C+I+G+(X – M)
Problems associated with expenditure approach

• Lack of accurate records particularly in the private sector
• Approximation of expenditure of the subsistence sector
• Difficulty in differentiating between final expenditure and intermediate expenditure
• Double counting may exist
• Fluctuating exchange rates may cause problems in the valuation of imports and exports.

Income approach

• In this method, the national income is arrived at by summing all the money received by those who participate in the production of goods and services.
• Such incomes are in the form of rewards to the production factors (wages, rent, interest and profits).
• Public income is also taken into account i.e. it is the income received by the government from its investments (Parastatals, joint ventures).
• Transfer payments are excluded since they represent a redistribution of incomes from those who have earned them to the recipient’s e.g. National insurance schemes.

Problems related to this method

1. Determination of what proportion of transfer payments constitute in the income of a country.
2. Inaccurate data may exist since business people may not tell the truth about their income in order to evade tax.
3. Price fluctuations may make national income determination difficult.
4. Income from illegal activities is not captured.
5. Valuation of income from subsistence economy may be difficult e.g. housewives.

Channels of distribution are the paths that goods and or services follow from the producers to the final users.
The persons involved in the distribution of goods from the producer to consumer are called middlemen or intermediaries.
There are different channels that different products follow. Some of the channels include the following:

1. Producer to agent to wholesaler to retailer to consumer.
2. Producer to co – operative society to marketing board to wholesaler to retailer to consumer.
3. Producer to marketing board to wholesaler to retailer to consumer.
4. Producer to wholesaler to retailer to consumer.
5. Producer to wholesaler to consumer
6. Producer to retailer to consumer
7. Producer to consumer

The following are some the roles performed by middlemen in the chain of distribution

1. Bulk accumulation (assembling). They similar goods from different producers in small quantities and then offering the large amount gathered to buyers who may want to buy in large volumes.
2. Reducing transactions. The interactions between the producers and the consumers will be reduced since the middlemen are the ones who will be communicating to the consumers.
3. Bulk breaking. They buy in large quantities and then sell in small quantities as desired by the consumers.
4. Risk taking. They assume all the risks related with the movement of goods from the producers to the consumers. Such risks include theft, damages, loss due to bad debts.
5. Finance provision. Middlemen provide finance to the producers by buying goods in large quantities and paying for them in time.
6. Provision of information. Middlemen gather market information from the consumers then pass to the producers who in turn produce goods in line with the tastes of consumers.
7. Marketing/product promotion. Middlemen are involved in marketing of goods hence stimulating the interest of consumers.
8. Provision of transport. Middlemen do transport goods from the producers up to the where the consumers can access them. Both the producers and consumers are hence relieved of transport costs.
9. Storage
10. Variety provision
11. Availing goods to consumers

Factors that influence the choice of a distribution channel include the following:

1. Product nature. Perishable products should be sold directly to the consumers because delays may result to losses since they go bad fast. In addition, bulky products need direct selling in order to reduce transportation and stock handling costs.
2. Nature of the market. Where the market is concentrated in one area, direct selling is appropriate. A longer channel of distribution is preferred where the market is widely spread.
3. Role of intermediary. The channel chosen should be able to perform the services related to the product being sold e.g. for technical goods, the middleman should be able to offer technical support to the customers.
4. Resources and size of the firm/producer. If the producer is small, then direct selling would be appropriate. Large firms with sufficient financial resources can opt for long channels of distribution.
5. Channels used by competitors. If a firm wants its products to compete with those of the competitors, then is it prudent to use similar channels. A firm that wants to avoid competition should use a different channel of distribution.
6. Government policy. The channel chosen should be able to meet government regulations such as all middlemen distributing pharmaceutical products must be recognized by the relevant government bodies (Pharmacy and Poisons Board).
7. Marketing risks. In the event the firm wants to avoid risks related to distribution, it will opt for middlemen.
8. Questions

The term ‘market’ is usually used to mean the place where buyers and sellers meet to transact business. In Business studies, however, the term ‘market’ is used to refer to the interaction of buyers and sellers where there is an exchange of goods and services for a consideration.
NOTE: The contact between sellers and buyers may be physical or otherwise hence a market is not necessarily a place, but any situation in which buying and selling takes place. A market exists whenever opportunities for exchange of goods and services are available, made known and used regularly.

​It is a particular market in which specific goods and services are sold and with particular features that distinguish it from the other markets. The features are mainly in terms of the number of sellers and buyers and whether the goods sold are homogeneous or heterogeneous. Product market is also referred to as market structure. Markets may be classified according to the number of firms in the industry or the type of products sold in them.

The number of firms operating in a particular market will determine the degree of competition that will exist in a given industry. In some markets there are many sellers meaning that the degree of competition is very high, where as in other markets there is no competition because only one firm exists.
When markets are classified according to the degree of competition, there are four main types, these are;

1. Perfect competition
2. Pure monopoly (monopoly)
3. Monopolistic competition
4. Oligopoly