Purpose of Business Documents

What are business documents?

 Business documents are used to keep records of all transactions

 They are used as sources of information
 The amounts are then entered into the books of prime entry
 They can be used to check potential errors

Features of Source Documents

Source documents contain the following information:

 Date of transaction.
 Names and addresses of parties involved in the transaction.
 Description of the goods or services.
 Amount involved.
 Terms and conditions related to trade discounts, cash discount and other details related to
delivery.
 Signature of the concerned parties.
Types of Source Documents

What is an invoice?

 An invoice is used as a record of a credit sale or credit purchase

 The supplier issues an invoice to the credit customer
 The customer might refer to this as a purchases invoice
 The supplier will keep a copy
 They might refer to it as a sales invoice
 An entry is made in the books of prime entry when an invoice is issued or received for goods
or services
 The customer enters the value in the purchases journal
 The supplier enters the value in the sales journal
 If the invoice is for a non-current asset, then the book of original entry is the journal

What information is contained in an invoice?

 The date of the transaction

 The details of the supplier
 Name and address
 The details of the customer
 Name and address
 The details of the goods or services
 The quantity
 The price of each item
 Trade discount
 This is deducted before the total amount is stated
 The total amount owed
 Terms for eligibility of cash discount
Credit Note

What is a debit note?

A credit customer issues a debit note to a supplier to request a reduction in the balance of an invoice

The customer could ask for a reduction if:

 The goods are damaged or faulty

 They were sent the wrong items
 Goods are missing from their order

No entries are recorded in the books of prime entry at this stage.

This is because the supplier has not yet authorised the reduction

This is done when the customer receives a credit note from the supplier

What information is contained in a debit note?

 The date of the request

 The details of the supplier
 Name and address
 The details of the customer
 Name and address
 The reason for the request for a reduction
 Details of the goods that are being returned
 Details of the goods that were missing
 The total reduction that is being requested

What is a credit note?

A supplier issues a credit note to a credit customer when the balance on an invoice is reduced

The customer uses the credit note received to record the return

It will be matched and filed with the corresponding invoice and debit note

The supplier keeps a copy of the credit note issued to record the return

It will be matched and filed with the corresponding invoice

An entry is made in the books of prime entry when a credit note is issued or received

The customer enters the value in the purchases returns journal

The supplier enters the value in the sales returns journal

What information is contained in a credit note?

 The date of the reduction

 The details of the supplier
 Name and address
 The details of the customer
 Name and address
 The reason for the reduction
 Details ofthe goods that are being returned
  Details of the goods that were missing
 The total reduction that is being given

Statements of Account

What is a statement of account?

A statement of account is used to show all transactions between a credit customer and a supplier
within a given time frame

A statement of account is issued on a regular basis by the supplier

No entries are recorded in the books of prime entry when a statement of account is issued or
received

 This is because no new transactions have taken place

 The customer can check the balance on the statement with the balance in their purchases
ledger account

There is usually a balance column which shows the balance after each transaction

The statement of account is written from the point of view of the supplier

Transactions which increase the customer’s balance will be labelled as a debit

Transactions which decrease the customer’s balance will be labelled as a credit

What information is contained in a statement of account?

 The date that the statement is issued

 The details of the supplier
 Name and address
 The details of the customer
o Name and address
 The opening balance
 The date and amount of any purchases by the customer
o These will correspond to invoices that were issued
 The date and amount of any returns by the customer
o These will correspond to credit notes that were issued
 Payments made by the customer
 Cash discounts received by the customer
 The closing balance

Receipts

What is a receipt?

A receipt is used as a record of a cash payment

A supplier issues a receipt to a customer when they pay for goods using physical cash

 Sometimes a receipt is issued when the customer pays using money in their bank account
o Other business documents may also be used to record these transactions
Cheques & Cheque Counterfoils

What is a cheque?

A cheque is a form of payment

Itis written by the customer and given to the supplier

The supplier takes the cheques they receive to the bank and deposits them into the business bank
account

A cheque will contain:

 The details of the customer’s bank account

 The name of the supplier
 The amount to be paid
 The date on which the cheque is written
 The customer’s signature

The supplier will use the cheque as the business document for payments

 When the customer pays by cheque

What is a cheque counterfoil?

Cheques are attached to counterfoils in a chequebook

When a customer writes a cheque they also fill in some basic details on the counterfoil

 The name of the person who is being paid

 The amount to be paid
 The date that the cheque is written

The customer tears off the cheque and hands it to a supplier as payment

The customer keeps the cheque counterfoil

 This is used as a record of the payment

Petty Cash Vouchers

What is a petty cash voucher?

A petty cash voucheris a document used when paying for small valued purchases using petty cash

 This is usually done when a cheque would not be appropriate due to the low value

The customer pays the supplier using money from the petty cash till and records the details on a a
voucher

The information from the vouchers is then transferred to the petty cash book

Paying-In Slips

What is a paying-in slip?

A paying-in slip is a document used when depositing cash and/or cheques into a bank account

The paying-in slip is kept by the business as a record of the deposit

It contains:

 The total amount from cash

 The total amount from cheques
 The total amount being deposited
 The date

Bank statements

What is a bank statement?

A bank statement is issued regularly by a bank

It details all the bank transactions within a given period

 It shows money that goes in and out ofthe business' bank account

It shows the opening and closing balances for that period

A bank statement is used as a business document to identify and reconcile:

 Payments by credit transfer

 Payments by telephone transfer
 Payments by direct debit
 Payments by standing order
 Bank charges and interest

What is a direct debit?

A direct debit is used by a business to make recurring bank transfer payments to a person or another
business

The direct debit is set up by the person or business receiving the payments

The business that makes the payment needs to agree to the terms

The payments can change

 The dates of the payments

 The amounts of the payments

What is a standing order?

A standing orderis used by a business to make recurring bank transfer payments to a person or
another business

The standing order is set up by the business making the payments

The payments are fixed

 The dates are determined in advance

o It could be the same day each month