Hi kash4kev,
No that is pretty much all wrong.
Even in the first case it is not good to short the - encoder outputs to GND. That could damage the Drive's outputs. It would have been better to leave those disconnected.
Kanalog doesn't have any Step/Dir outputs. The differential encoder inputs can not be used as Step/Dir outputs. Kanalog does have differential encoder inputs. So connect the Drive's differential encoder outputs to the Kanalog differential encoder inputs A+ to A+, A- to A-, B+ to B+, B- to B-.
How many Axes do you have? If 4 or less you might use the Step/Dir Outputs on KFLOP JP5. See:
Dynomotion Motion Control Boards for CNC Manufacturing and Robotics Applications
Dynomotion Motion Control Boards for CNC Manufacturing and Robotics Applications
HTH
Regards