💰 Chapter 2.2: Business Documents 📄

Hello IGCSE Accountants!

Welcome to the essential world of Business Documents. If you think Accounting is just about numbers, think again! Every single number you record has to come from somewhere, and that source is almost always a document.
Think of these documents as the evidence or the "receipts" that prove a transaction actually happened. Without them, your accounts would be unreliable!

In this chapter, we will learn to recognise, understand, and use the key documents that form the starting point for all double-entry bookkeeping.

Section 1: The Core Business Documents

These documents are generated every time a business activity takes place, especially when dealing with customers (trade receivables) or suppliers (trade payables).

1. The Invoice

The Invoice is perhaps the most important document in credit sales and purchases.

  • What is it? It is a formal request for payment issued by the seller to the buyer when goods or services are sold on credit.
  • Key Purpose: To notify the buyer exactly how much they owe, why, and when payment is due.
  • Source of Information:
    • Seller uses the sales invoice to record a Credit Sale (entry into the Sales Journal).
    • Buyer uses the purchase invoice to record a Credit Purchase (entry into the Purchases Journal).

☛ Quick Tip: If you buy something and don't pay immediately, you get an invoice. If you pay immediately, you get a receipt!

2. The Credit Note (CN)

A Credit Note is the opposite of an invoice—it tells the customer that their debt has been reduced.

  • What is it? A document issued by the seller to the buyer.
  • Key Purpose: To acknowledge a reduction in the amount owed by the customer due to reasons like: goods being returned, goods being faulty or damaged, or the customer having been overcharged.
  • Source of Information:
    • Seller uses it to record Sales Returns (entry into the Sales Returns Journal).
    • Buyer uses it to record Purchases Returns (entry into the Purchases Returns Journal).

3. The Debit Note (DN)

A Debit Note is used to inform the recipient that their account is being debited (increased).

  • What is it? A document used to correct an error or request an increase in the amount owed.
  • Key Purpose: If a seller accidentally charged the customer too little on the original invoice, they would issue a Debit Note for the extra amount now owed.

💡 Memory Aid for Notes:
Invoice = Increase (the debt)
Credit Note = Cancel/Credit (reduces the debt)
Debit Note = Demand/Debit (increases the debt, often due to correction)

4. The Statement of Account

This document gives a clear overview of a customer's entire relationship with the business over a period.

  • What is it? A periodic summary (usually monthly) sent by the seller to the buyer.
  • Key Purpose: It shows all transactions (invoices, payments, credit notes) that took place during the month, detailing the opening balance, total movements, and the closing balance due.
  • Did you know? A statement of account is not a request for payment (that's the Invoice’s job), but rather a reminder of what is still due on a specific date.

5. The Receipt

A Receipt is the simplest form of proof.

  • What is it? A document issued by the seller to the buyer confirming that money has been received for a transaction.
  • Key Purpose: Proof of payment.
  • Source of Information: For the business receiving the cash, receipts are a source document for the Cash Book (Receipts side).

6. The Cheque and Cheque Counterfoil

A cheque is a document instructing a bank to pay a specific amount to a specified person or business.

  • The Cheque: The main part of the document that is given to the payee (the person being paid).
  • The Cheque Counterfoil: This is the crucial part for accounting. It is the stub (the part that stays in the chequebook) that the issuer keeps.
  • Source of Information: The Cheque Counterfoil is the source document used by the business issuing the payment to record the transaction in the Cash Book (Payments side).
✔ Key Takeaway Section 1: Completing Documents

You must be able to complete pro-forma (blank) business documents. This means knowing what essential information every document must contain:

  • Business names and addresses (Seller and Buyer).
  • Date of the transaction.
  • Document reference number (e.g., Invoice No. 123).
  • Description of goods/services, quantity, unit price, and total amount.
  • Terms of trade (e.g., credit period).

Section 2: Business Documents as Sources of Information

Understanding the flow of data is key in Accounting. The documents discussed above are the Source Documents—they trigger the recording process in the Books of Prime Entry (BoPE).

Don't worry if this seems tricky at first! We are simply matching the proof (the document) with the first place the transaction is written down (the BoPE).

A. Documents Relating to Credit Sales and Purchases

When a business sells or buys goods on credit, the following documents are generated:

Source: Sales Invoice
  • Transaction Type: Credit Sale.
  • Used By Seller: To record the debt in the Sales Journal.
Source: Purchase Invoice
  • Transaction Type: Credit Purchase.
  • Used By Buyer: To record the liability in the Purchases Journal.
Source: Credit Note Issued
  • Transaction Type: Sales Returns (goods coming back).
  • Used By Seller: To record the return in the Sales Returns Journal.

B. Documents Relating to Cash and Bank Transactions

All cash and bank-related documents are used to record entries in the Cash Book or the Petty Cash Book.

Source: Receipt Issued
  • Transaction Type: Cash received from customers or for cash sales.
  • Used For: Entering the amount on the Receipts (Debit) side of the Cash Book.
Source: Cheque Counterfoil
  • Transaction Type: Payments made by the business via cheque.
  • Used For: Entering the amount on the Payments (Credit) side of the Cash Book.
Source: Paying-in Slip (Bank Deposit Slip)

When you deposit cash or cheques into the bank, you fill out a paying-in slip (the bank keeps the main part, but you keep a counterfoil/copy).

  • Transaction Type: Depositing money into the bank.
  • Used For: Verifying the amount deposited and entering it on the Receipts (Debit) side of the Cash Book.
Source: Bank Statement

This is the statement sent by the bank detailing all activity in the business's bank account.

  • Transaction Type: Direct debits, standing orders, bank charges, or bank interest (transactions the business was not immediately aware of).
  • Used For: Updating and correcting the entries in the business's own Cash Book.
⚠ Common Mistake to Avoid

Do not confuse the Invoice (a request for payment for a credit sale) with the Statement of Account (a summary of all transactions over a month). Both show outstanding debt, but the Invoice is raised immediately after a sale, while the Statement is periodic.

Quick Review: Linking Documents to Records

This table summarises the flow of information that you need to know for your exam:

Source Document
→ Transaction Type
→ Book of Prime Entry

  • Invoice (Sales): Credit Sales → Sales Journal
  • Invoice (Purchases): Credit Purchases → Purchases Journal
  • Credit Note (Issued): Sales Returns → Sales Returns Journal
  • Credit Note (Received): Purchases Returns → Purchases Returns Journal
  • Receipts/Paying-in Slip: Cash/Bank Receipts → Cash Book (Debit side)
  • Cheque Counterfoil: Bank Payments → Cash Book (Credit side)
  • Bank Statement: Bank Charges/Interest/Transfers → Cash Book (Update)

Congratulations!

You now understand the fundamental documentation required to start recording data. These documents are the backbone of accuracy in accounting!