AxcIdentify the documents used to record business transactions.
When coming to draw up the accounts a business needs documents to extract the figures from and also to evidence those figures, they can be collected from source documents, there are many documents for many transactions and they all have their own purposes and uses.
It is also important to understand the difference between a Credit and a Debit entry to fully interpret the source documents. The basic rule of double entry bookkeeping is that for every debit there must always be an equal and corresponding credit.
A Credit entry is any money that is entering the account.
A Debit entry is any money that is leaving the account.
Invoices:
The seller of goods or services provides and invoice for the buyer, the invoice will contain the following information: * Addresses – the suppliers, the customers and the delivery address if it is different. * Dates – the order and the delivery date. * Reference – a unique invoice number will be present, together with the customer’s order number. * Description of the goods or services sold. * Value – the total amount that is owed by the customer. * Terms – when the invoice is due for payment and any discount that is available to the customer.
The invoice informs the buyer how much is being paid for the goods or services.
Credit Notes:
Credit notes are sent from the supplier to the customer when an adjustment to the amount is required. This may for example, be due to a calculation error, an incorrect delivery, damage to the goods, returned goods or goods lost in transit.
The details that are found on a credit note are the same as those found on an invoice.
The credit note informs the buyer how much has been deducted from the amount owed to the supplier.
Cheque Counterfoils:
When a cheque is written, the details are recorded on the cheque counterfoil and this becomes the source document.
The details recorded are: * The date of the cheque * The Payee * The amount of the cheque * Each cheque has a unique issue number and this must be included when the details are transferred into the accounting records.
Paying-in Slip Counterfoils:
When cash or cheques are paid into the bank, the details are recorded on the paying-in slip counterfoil and this becomes the source document.
The details recorded are: * The date of the paying in * The drawers of cheques (person paying the organisation) or the source of cash banked * The amount of the cheques/cash banked.
Cash Receipts and Till Rolls
When cash or cheques are received by a business, a cash receipt will be issued. This receipt may take the form of a till roll or alternatively may be a hand-written receipt. The duplicate copies of these receipts form the source documents for cash and cheque receipts.
Information from Bank Statements:
Payments and receipts may be debited or credited directly through the bank account. In these situations the bank statement itself becomes the source document for: * Direct Debits – where authority is granted by the business to a third party ( for example a supplier of goods or services) for a fixed or variable payments to be made by the request of that third party. * Standing Orders – Where a fixed payment is made at regular intervals by the bank on instruction of the business. * Bank Interest and Charges – where the bank process its charge to the business for maintenance of the bank account or interest on funds borrowed or invested. * Credit Transfers – Where money has been paid directly into the bank account of the business by a third party. * BACS – (Bankers Automated Clearing Service) – a computerised payment transfer system which is often used by businesses to pay, wages , salaries, trade payables, etc.
Other Source Documents Include:
Delivery Note
A document detailing the goods that have been delivered by the supplier. This should be signed by the recipient and a copy returned to the supplier as proof of delivery.
Purchase Order
A document raised by the purchasing department used to place an order with a supplier.
Remittance Advice
A document sent a payment advising the recipient which invoices, etc. are being paid.
Statement of Account
A document sent to a customer detailing all recent transactions and informing them of the total amount outstanding.