Prepare a three-column cash book for May, recording opening balances, cash receipts, payments, and discounts.

To prepare a three-column cash book, we will record all cash and bank transactions, including discounts allowed and received. The cash book has a debit side for receipts and a credit side for payments.

Step 1: Record opening balances and cash receipts.
On May 1, the business starts with a cash balance of Sh 50,000 and a bank balance of Sh 180,000. Cash sales of Sh 3,000 are received on May 2. On May 3, cheques are received from debtors (Erick, Tommy, Mato) after deducting a 5% discount. On May 16, cash is received from Monica in full settlement, implying a discount allowed. On May 17, cash sales are banked.

• May 1, Balance b/d: Cash Sh 50,000, Bank Sh 180,000.
• May 2, Sales: Cash Sh 3,000.
• May 3, Debtors (Erick): Received Sh 22,800 (cheque). Original amount = Sh 22,800 / (1 - 0.05) = Sh 24,000. Discount allowed = Sh 24,000 - Sh 22,800 = Sh 1,200.
• May 3, Debtors (Tommy): Received Sh 8,550 (cheque). Original amount = Sh 8,550 / (1 - 0.05) = Sh 9,000. Discount allowed = Sh 9,000 - Sh 8,550 = Sh 450.
• May 3, Debtors (Mato): Received Sh 1,330 (cheque). Original amount = Sh 1,330 / (1 - 0.05) = Sh 1,400. Discount allowed = Sh 1,400 - Sh 1,330 = Sh 70.
• May 16, Monica: Received Sh 13,500 (cash) in full settlement of Sh 15,000. Discount allowed = Sh 15,000 - Sh 13,500 = Sh 1,500.
• May 17, Sales: Banked Sh 26,400 (direct to bank).

Step 2: Record cash and bank payments.
On May 3, creditors are paid by cheque after deducting a 10% cash discount. On May 5, cash is paid for repairs. On May 10, cash is paid to Peter. On May 20, cash is paid for purchases.

• May 3, Creditors (Sally): Original amount Sh 1,500. Discount received = 10% of Sh 1,500 = Sh 150. Paid by cheque = Sh 1,500 - Sh 150 = Sh 1,350.
• May 3, Creditors (Vera): Original amount Sh 16,000. Discount received = 10% of Sh 16,000 = Sh 1,600. Paid by cheque = Sh 16,000 - Sh 1,600 = Sh 14,400.
• May 3, Creditors (Kibe): Original amount Sh 1,200. Discount received = 10% of Sh 1,200 = Sh 120. Paid by cheque = Sh 1,200 - Sh 120 = Sh 1,080.
• May 5, Repairs: Paid Sh 16,000 (cash).
• May 10, Peter: Paid Sh 9,500 (cash).
• May 20, Purchases: Paid Sh 8,920 (cash).

Step 3: Record contra entry.
On May 15, Sh 6,000 is banked from the cash till. This is a contra entry, affecting both cash and bank accounts.

• May 15, Bank (Contra): Cash decreases, Bank increases. Debit Bank Sh 6,000, Credit Cash Sh 6,000.

Step 4: Prepare the three-column cash book, calculate totals, and determine closing balances.

\begin{array}{|l|l|l|r|r|r||l|l|l|r|r|r|} \hline Date & Particulars & F & Disc. All. & Cash & Bank & Date & Particulars & F & Disc. Rec. & Cash & Bank \\ & & & (Sh) & (Sh) & (Sh) & & & & (Sh) & (Sh) & (Sh) \\ \hline May 1 & Balance b/d & & & 50,000 & 180,000 & May 3 & Creditors (Sally) & & 150 & & 1,350 \\ May 2 & Sales & & & 3,000 & & May 3 & Creditors (Vera) & & 1,600 & & 14,400 \\ May 3 & Debtors (Erick) & & 1,200 & & 22,800 & May 3 & Creditors (Kibe) & & 120 & & 1,080 \\ May 3 & Debtors (Tommy) & & 450 & & 8,550 & May 5 & Repairs & & & 16,000 & \\ May 3 & Debtors (Mato) & & 70 & & 1,330 & \text{May