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2.2 Business Documents

The document outlines various business documents including invoices, debit notes, credit notes, cheques, receipts, and statements of account, detailing their purposes and functions in financial transactions. It also explains trade and cash discounts, and the importance of books of prime entry and ledgers in accounting practices. The advantages of organizing ledgers into sections for efficiency and fraud reduction are also highlighted.

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19 views2 pages

2.2 Business Documents

The document outlines various business documents including invoices, debit notes, credit notes, cheques, receipts, and statements of account, detailing their purposes and functions in financial transactions. It also explains trade and cash discounts, and the importance of books of prime entry and ledgers in accounting practices. The advantages of organizing ledgers into sections for efficiency and fraud reduction are also highlighted.

Uploaded by

tjsuray
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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2.

2 Business Documents
1 Invoice
- An invoice is a document issued by the supplier when goods are sold on credit.
- It shows the details of goods sold and the Conditions and terms of sales such as trade
discount, cash discount and the date payment fall due.
- It requests the buyer to pay for the goods sold to him.
- It shows the Conditions and terms of sales such as trade discount, cash discount and the
date payment fall due
- It is used as the source document to record in the sales journal and purchases journal.

2 Debit note
- A debit note is a document issued by a buyer to request a reduction in the invoice
received for any shortages, overcharges and damages in the goods.
- The buyer may not debit the account of the supplier until his request is approved by him
by the issue of the credit note to the buyer.
- A debit note is also prepared whenever it becomes necessary, for one reason or the
other, to increase the amount due from a customer.
3 Credit note
- A credit note is a document issued by a seller of goods on credit to notify of a reduction
in an invoice previously issued.
- The customer receives the original credit note and uses it to record the purchases
returns in the purchases returns journal.
- The supplier keeps a copy of the credit note and uses it to record the sales returns in the
sales returns journal.
4 Cheque
-A cheque is a written order to a bank to pay a stated sum of money to the person or
business named on the order. Cheque is used to make payments to suppliers.
• The supplier receives the cheque. A paying-in slip is completed when the cheque is paid
into the bank. The counterfoil of this paying-in slip is used to make the entry in the cash
book to show the money paid into the bank and to make a note of the discount in the
discount allowed column.
• The customer keeps the cheque counterfoil and uses it to make the entry in the cash
book to show the money paid out of the bank and to make a note of the discount in the
discount received column.
5 Receipt
- Receipts are issued to confirm that a payment has been received from a customer by
cash or cheques. It acts as proof of payment by customers.
- Since a cheque passes through the banking system it can act as a receipt, so many
businesses do not issue receipts if accounts have been paid by cheque.
- Where goods are sold for cash, the customer is usually provided with a receipt.
6 Statement of account
- It is the copy of a customer’s account, prepared by the supplier and sent to the
customer.
- It shows details of all transactions with a customer during the month.
- It informs or reminds the customer of the amount due at the end of the month.
- It provides the customer with a summary of the month’s transactions and confirms the
settlement terms.
- It ensures that no errors have been made by customer or supplier.
Trade discount
- A trade discount is a reduction in the list price of the goods sold to customers.
- It is given by sellers to increase the quantity of sales.
- It encourages customers to buy in bulk.
- It is not recorded in the books of accounts but shown as a deduction on the invoice.
Cash discount
- A cash discount is allowed to customers for making prompt payment.
- It is the reduction in the payable amount of customers for paying by a set time.
- It is shown in the cash book.

Books of Prime entry


1. Purchases Journal - All credit purchases are entered first in this book.
2. Purchases returns Journal - All purchases returns are entered first in this book.
3. Sales Journal - All credit sales are entered first in this book.
4. Sales returns Journal - All sales returns are entered first in this book.
5. Cash Book – All cash and bank transactions are first entered in this book.
6. Petty cash book – All petty cash transactions are entered are first entered.
7. General Journal – All other transactions are entered in this book.

Uses of books of prime entry


1. Reduces number of entries in the ledger
2. Allows work to be divided between several people.
3. Similar type of transactions can be grouped together.
4. Acts as an aid for postings to the ledger.

Ledgers
1. Sales Ledger – Personal accounts of all credit customers
2. Purchases Ledger – Personal accounts of all credit suppliers
3. General Ledger – All other accounts

Advantages of dividing ledgers into three sections


1. Work can be shared among several people.
2. Easier for reference as the same type of accounts are kept together.
3. Reduces the possibility of fraud.

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