BFT 04103: ELEMENTS OF COMMERCE

BTCA & BTCBF

ACADEMIC YEAR 2023/2024
TRANSACTIONAL DOCUMENTS

There are so many various documents which are used in various stages of business transactions as
discussed below: -

 Documents used at inquiry stage.

 Documents used at order stage.
 Documents used at delivery stage.
 Documents used at invoicing stage.
 Documents used at the payment stage.

 Documents used at the Inquiry Stage:

This is the first stage in transaction. An inquiry is a request by a prospective buyer for information
on available goods and services. It is aimed at establishing the following;

 Whether the goods or services required are available for sale.

 The quality or nature of the products available.
 The prices at which the goods or services are being sold.
 The terms of sale in respect to payment and delivery of goods or services.

Some of the documents used at this stage include;

A. Letter of Inquiry:
This is a letter written by a potential buyer to the seller to find out the goods and services offered
by the seller. A letter of inquiry can be general or specific. A specific letter of inquiry seeks for
information about a particular product.

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Reply to an inquiry
The seller may reply to the letter of inquiry by sending any of the following documents;
 Price list
 A catalogue
 Quotation
 A tender

B. A price list:
This is a list of items sold by the trader together with their prices. The information contained in a
price list is usually brief and not illustrated and may include; Name and address of the seller, List
of the goods and services, The recommended unit prices of the products, any discounts offered etc.
Price list show the prices of the commodities at that time.

C. A catalogue:
A catalogue is a basket which briefly describes the goods a seller stock. It is normally sent by the
seller to the buyer when the buyer sends a general letter of inquiry. It usually carries illustrations
on the goods stocked, and could be in the form of attractive and colorful pictures. Catalogues carry
more information than the price list and they are more expensive to print.

D. Quotation:
This is a document sent by a seller to a buyer in response to a specific letter of inquiry. It specifies
the conditions and terms under which the seller is willing to supply the specified goods and services
to the buyer. Quotations are normally in form of letters, but many large scale -businesses have pre-
printed quotations forms which they readily send to the potential customers.

E. A Tender:
This is a document of offer to sell sent by a seller to a buyer in response to an advertised request.
Tenders are delivered in sealed envelopes which are opened by the buyer on a specified date. The
winning tender is usually awarded on the of the lowest quoted price although the buyer is not
obliged to accept this especially if quality is likely to be low. Tenders are not binding unless
accepted by the buyer.

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  Documents used at the order stage:
After receiving replies to inquiry in form of price list, catalogue or Quotation, a prospective buyer
will study the terms and conditions stated in them, and then may decide to buy products or not.

i. An Order:
If a prospective buyer decides to purchase an item(s), he or she then places an order. An order is a
document sent by a potential buyer to a seller requesting to be provided with specified products
under specified terms and conditions. An order issued for services is called a local service order
(LSO). An order issued for goods is called local purchase order (L.P.O).

ii. Acknowledgement Note:

On receiving the order, the seller sends the buyer an acknowledgement note. An acknowledgement
note is a document sent by the seller to the prospective buyer to inform him/her that the order has
been received and it is being acted upon. After sending the acknowledgement note, the seller has
to decide whether to extend credit to the buyer or not. At this stage, the seller has the following
options;

1. If the seller is convinced that the buyer is credit worthy, arrangements are made to deliver the
ordered goods or services to the buyer.
2. If the seller is not sure of credit worthiness of the buyer, a credit status inquiry can be
issued to the buyer’s bankers or to other suppliers who deal with the buyer to ascertain the
credit worthiness.
3. If the buyer is not creditworthy, then a polite note or a proforma invoice can be sent to
him/her.

i. A Proforma Invoice:
This is a document sent by the seller to the buyer requesting the buyer to make payment for goods
or services before they are delivered. It indicates that the seller is not willing to grant the buyer
credit.

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Functions of a proforma invoice:

1. A polite way of asking for payment before the goods are delivered.
2. Sent when the seller does not want to give credit.
3. Used by importers to get customers clearance before goods are delivered.
4. Issued to an agent who sells goods on behalf of the seller.
5. Show what the buyer would have to pay if the order is approved.
6. Can be used to serve as a quotation.

 Documents used at the delivery stage:

After the seller has accepted the order sent an acknowledgement note and where necessary the
pro-forma invoice, the seller then prepares the goods for delivery to the buyer. This can be done
in the following ways;

 The seller can ask the buyer to collect the goods.

 The seller can deliver the goods to the buyer using his/her own means of transport.
 The goods can be delivered to the buyer through public transport.
 The services(s) can be rendered to the buyer at the sellers or the buyer’s premises or at any
convenient place.

The main documents that are used at this stage are;

i) Packing Note:
Before delivery goods are packed for dispatch. This is a document prepared by the seller
showing the goods contained/packed in every container, box or carton being delivered to the
buyer. A copy of the packing note is packed with the goods to help the buyer have a spot check.

NOTE: A packing not does not contain prices of goods. This ensures that those people involved
in checking and transporting goods do not know the value of goods. This is done as a precaution
against theft.

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ii) Advice Note:
This is a document sent by the seller to the buyer to inform the buyer that the ordered goods have
been dispatched. It is usually sent through the fastest means possible.

Functions of an Advice Note:

1. Informing the buyer that the goods are on the way so that in case of any delay in delivery, the
buyer can make inquiries.
2. Alerting the buyer so that necessary arrangements can be made for payments when the goods
arrive.
3. Can serve as an acknowledgement note, where one is not sent.

iii) Delivery Note:

This is a document sent by the seller to the buyer to accompany the goods being delivered. A
delivery note is always made in triplicate (3), one copy remains with the seller and two sent to
the buyer.
When the goods reach the buyer, he/she confirms that the goods are the ones ordered for and that
they are in the right condition by comparing the delivery note, the order and the goods. If the
buyer is satisfied with the goods, he/she signs the two copies, retains the original and send the
copy back to the seller. This serves as evidence that the goods have been received in the right
condition and in the right quantities.
Some businesses keep delivery books in which the buyer signs to indicate that goods have been
received in good condition. A delivery book is used by the seller if he/she delivers goods by
himself/herself as an alternative to a delivery note.

ii. Consignment Note:

This is a document prepared by a transporter to show that he/she has been hired to deliver
specified goods to a particular buyer. This document is used when goods are delivered to the

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buyer by public means of transport e.g. by trains. The seller is the consignor; the buyer is
the consignee and the goods the consignment.

The transporting company prepares the consignment note and gives the seller to complete and
sign. The seller then returns the note to the transporter (carrier) who takes it together with the
goods to the buyer. On receiving the goods, the buyer signs the consignment note as evidence
that the goods were actually transported.

Goods Received note:

This is a document sent by the buyer to the seller to inform him/her that goods sent have been
received. It usually prepared in duplicate, the original is sent to the seller and the copy retained
by the buyer.

Returned goods note/Damaged goods note:

If goods are damaged on the way, the buyer may return them to the seller. The buyer may also
return goods for other reasons;

 Wrong type of goods

 Excess goods
 Wrong quality goods

When the goods are returned, the buyer informs the seller of the return by sending a goods
returned note.
A goods returned note is a document sent by a buyer to a seller to inform him/her that certain
goods are being returned to the seller.
Where the goods are returned because of damage, the note may be referred to as the damaged
goods note.
When the seller receives the note together with the goods, he issues a credit note.

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  Documents used at the invoicing stage:

This stage involves the seller requesting or demanding for payment from the buyer for the goods
or services delivered.
Some of the documents used at this stage include;
a) Invoice:
This is a document sent to the buyer by the seller to demand for payment for goods delivered or
services rendered.
There are two types of invoices namely;

1. Cash invoice-This is sent when payment is expected immediately after delivery thus acting
as a cash sale receipt.
2. A credit invoice-This is sent when a buyer is allowed to pay at a later date.

Functions of an invoice:

1. It shows the details of goods sold i.e. quantity delivered, unit price, total value of the goods
and terms and conditions of sale.
2. It is a request to the buyer to make payment.
3. It serves as an evidence that the buyer owes the seller a certain amount of money.
4. It is used as a source document in recording the transaction in the book of accounts.

The letters E and O.E (Errors and Omissions Excepted) means the seller reserves the right to
correct any errors and omissions made in the invoice.
Businesses which offer services issue a document called a bill, which serves the purpose of an
invoice.

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 Differences Between the invoice and pro-forma invoice

The invoice The pro-forma invoice

It is issued after goods and services have been

It is issued before goods and services have been delivered
delivered

It shows the total value of the goods or services on

Shows the total value of goods and services to be bought
credit

It is used to demand payment for products sold on It is used to demand for payment in advance for products to
credit be bought

Used as a basis for making payment for products Used as a basis for preparing payment for products not yet
already bought bought

Serves as a notice of payment for products bought on

Serves as a Quotation for products to be bought.
credit

b) Credit note
This is a document sent by the seller to the buyer (credit buyer) to correct an overcharge. It is
used to inform the buyer that the amount payable by him/her has been reduced.
An overcharge is an excess amount charged beyond the right price.
Causes of overcharge may include;

 Arithmetical errors like wrong addition

 Price overcharges
 Inclusion of wrong or unordered items in the invoice
 Failure to deduct the allowable discounts
 Return of goods (damaged goods)
 Failure to note the return by the buyer of packing cases or containers used to deliver goods to
him/her
 Use of wrong price list.

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The purpose of the credit note is to reduce the total invoice amount by the amount of the
overcharge.
A credit note is usually printed in red to distinguish it from other documents.
Contents of a credit note include;

 Name and address of the seller and the buyer

 Credit note number
 Date document is prepared
 Description and value of goods returned by buyer (in case that was done)
 Total overcharge

Reasons why a seller would send a credit note to a buyer/circumstance under which a
credit note is sent to a buyer.

 When there is an overcharge in an invoice

 When the original invoice had indicated items that were not supplied
 When the buyer returns empty cases/crates that had been charged in the invoice.
 When the buyer returns some goods to the seller
 If the buyer was entitled to a discount which was not given or taken care of in the invoice.

c. Debit note:
This is a document sent by the seller to the buyer to correct an undercharge on the original
invoice. It is used to inform the buyer that the amount payable by him has been increased.
A debit note acts as an additional invoice.
An undercharge arises when amount charged on products is less than their right price.
Causes of undercharge include;

 Price undercharges on items

 Arithmetic errors/mistaken in calculation
 Omission of items in the invoice
 Retention of crates and containers that were not involved by the buyer
 Deductions of more discount than what was give/intended.

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Circumstances under which a debit note will be sent to the buyer

1. When there is an undercharge in the invoice

2. If the buyer had been given a discount that was not due to him
3. If some items had been omitted in the original invoice
4. If the buyer decides to retain some empty containers or crates

Differences Between a debit note and a credit note:

DEBIT NOTE CREDIT NOTE

Issued to correct an undercharge on the invoice. Issued to correct an overcharge on the invoice.

Written on blue or black. Usually written in red

Issued when containers have not been returned Issued when containers have been returned.

 Documents used at the payment stage:

This is the final stage of a credit business transaction. It takes place after the invoice has been
received and ascertained to be correct or where necessary, corrections made.
The documents used at the payment stage include:

i).Receipt:
This is a document issued to the buyer by the seller as proof that payment has been made.
Payment can be done in cash, cheque, other forms of money or in kind. The receipt also serves as
a source document for making entries in books of accounts.
The issuance of a receipt by the seller to the buyer after receiving payment marks the end of the
credit transaction between the seller and the buyer (where payment has been done in full)
A receipt serves the same purpose as the cash sale slip.

ii) Statement of Account:

This is a document prepared by the seller and sent to the buyer, giving a summary of all the

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dealings/transactions between them during a particular period of time, usually a month. The
statement of account enables the buyer to ascertain the correctness of the transactions which have
taken place with the seller over the stated period.

iii) IOU
An IOU (I owe you) is a document written by the buyer and sent to the seller to acknowledge a
debt. It does not specify date when settlement will be made, It acts as evidence that a debt exists.

Summary of documents used in home trade:

Document sent by buyer Document sent by seller

Letter of inquiry Price list

Order Catalogue

Goods received note Quotation

Goods returned note Tender

IOU Acknowledgement

Advice note

Packaging note

Delivery note

Consignment note

Invoice

Pro forma invoice

Credit note

Debit note

Receipt

Statement of account

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