Virtual Kollage: Initial documentation of business transactions

Posted by / Monday, 2 May 2016 / No comments

Initial documentation of business transactions



Initial Documentation of Business Transactions
Business transactions normally occur under conditions that lead to documents changing hands. Documentation may be internal or external. Internal documentation refers to documents raised by a particular business itself. External documentation, however, refers to documents received by a business from outsiders.

These documents are called Source Documents since they are documents on which transactions are recorded first before being posted into the ledger accounts.

Some of the source documents used for recording business transactions are quotations or tenders, sales orders, purchase orders, letters of inquiry, pro-forma invoices, sales invoices, purchases invoices, delivery notes, dispatch notes, goods received notes, advice notes, debit notes, credit notes, cash receipts, bank statements, cheque stubs or stumps, cash or cheque pay-in slips, etc. 

1.      Quotation or Tender Document: This is a document issued to prospective suppliers to obtain their terms of supply. The following mix must be considered when selecting a supplier:
·         price,
·         delivery,
·          quantity and
·          quality.

2.      Purchase Order: It is a document prepared by the purchasing department and sent to a supplier for the purchase of goods. The following are some details found on a purchase order:
  • Name and address of the business
  • Order reference and date.
  • Supplier name and address.
  • The official raising the order and the one approving it.
  • Description of goods, quantity ordered, unit price, total value, tax payable, etc.

3.      Sales Order: It is a document prepared by a seller to a buyer normally to confirm any verbal order made by the buyer. The following are some of the details found on a sales order:
  • Name and address of the selling business.
  • Name and address of the buying business.
  • Order reference and date.
  • Customer’s name and address.
  • The person making the order and the one approving.
  • Description of goods, quantity ordered, unit price, total value, tax payable, etc.

4.      Sales Invoice: This is a document issued to a buyer for goods sold on credit. The following details may appear on the invoice:
  • Name and address of the selling business.
  • Name and address of buying business.
  • Invoice reference and date.
  • Sales order reference.
  • The official raising the order and the one approving it.
  • Description of goods, quantity ordered, unit price, total value, tax payable, etc.

5.      Purchases Invoice: This is a document issued by a supplier for goods bought on credit. The following details may appear on the invoice:
  • Name and address of the selling business.
  • Name and address of buying business.
  • Invoice reference and date.
  • Purchase order reference.
  • The official raising the order and the one approving it.
  • Description of goods, quantity ordered, unit price, total value, tax payable, etc.

6.      Delivery Note: It is a document which accompanies goods received from a supplier. This document is signed by the receiving company to confirm that goods have been delivered.

7.      Goods Received Note: It is a document prepared to acknowledge the acceptability of goods delivered by a supplier. Some of the details that appear on the goods received note may be:
a.       The name and address of purchasing and supplying organisations
b.      Date and time of receipt of goods
c.       Corresponding purchase order number
d.      Supplier’s advice note number
e.       Quantity, description etc of goods received
f.       Initials of receiving officer.

8.      Debit Notes Issued: This document is usually issued  for goods returned to a supplier. That is a source document to return outwards.  It is an indication that the suppliers account has been debited with the value of goods returned. It is also issued to suppliers when overstatement of invoice received from them is detected. It may also be issued to customers when understatement of invoice issued to them  is detected

9.      Debit Note Received. This document is usually received for goods returned by a debtor. That is, a source document to return inwards.  It is an indication that the debtors account must be credited with the value of goods returned. It is received from debtors when overstatement of invoice issued to them is detected and they are the first to detect. It may also be received from suppliers when understatement of invoice received from them is detected


10.  Credit Notes Issued:  This document is usually issued for goods returned by customers. It is an indication that the customer’s account has been credited with the value of goods returned. It is issued if a firm is the first to detect an overstatement if invoice issued to debtors. It is also a source document to return inwards. It may also be issued to suppliers when understatement of invoice from them  is detected

11.  Credit Notes Received. This document is usually received for goods returned to a supplier. That is a source document to return outward.  It is an indication that the suppliers account must be debited with the value of goods returned. It is received from suppliers when overstatement of invoice received from  them is detected and they are the first to detect.

12.  Bank Statement: This is a statement received by a business from its banker detailing all transactions that have occurred between the two parties usually during a particular month.

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