Business documents Cambridge IGCSE Accounting revision
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In plain words
No entry is made in the books without a piece of paper, or a digital file, to back it up. Each kind of transaction has its own document, and each document is entered in a particular book.
7 things to know
- An invoice is issued by the seller when goods are sold on credit. It shows the goods, the prices, any trade discount and the amount owed. The seller enters it in the sales journal, and the buyer in the purchases journal.
- A credit note is issued by the seller to reduce the amount owed, when goods are returned or the customer was overcharged. The seller enters it in the sales returns journal, and the buyer in the purchases returns journal.
- A debit note is sent by the buyer to the seller to ask for a reduction. It is a request only, so nothing is entered in the books from it.
- A statement of account is sent by the seller, usually each month. It lists the month's transactions and the balance owed. It is a reminder and a check. No entries are made from it.
- A cheque counterfoil records a payment by cheque, and a paying-in slip records money paid into the bank. A receipt is proof that money was received. All three are entered in the cash book.
- A bank statement is the bank's record of the business's account. It is used to update the cash book and to prepare a bank reconciliation.
- All of these documents can be produced and recorded manually or digitally.
Worked example
Zara buys goods on credit from Kofi, returns some because they are faulty, and receives a document from Kofi reducing what she owes. Name the documents, in order, and say who issues each.
- The sale: Kofi issues an invoice to Zara.
- The return: Zara may send a debit note to Kofi, asking for the reduction.
- The reduction: Kofi issues a credit note to Zara.
Tips and tricks
- A credit note comes from the seller. A debit note comes from the buyer. The names follow what happens in the seller's books: a credit note credits the customer's account.
- No entries are made from a debit note or a statement of account. "Which document is not entered in the books?" is a common question.
It lands in your notebook with its questions as flashcards.
Business documents: 6 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which document is issued by a seller when goods are sold on credit?
It tells the buyer what is owed.
Which document does a seller issue when a customer returns goods?
It reduces the amount the customer owes.
Which document is sent by a buyer to request a reduction in the amount owed?
The seller answers it with a credit note.
In which book does a seller record a credit note it has issued?
The buyer records the same credit note in its purchases returns journal.
What is a statement of account?
It reminds the customer what to pay, and lets both sides check their records.
Which document is the source for an entry on the debit side of the cash book?
Money paid into the bank is a receipt, so it is debited.
Quiz
6 questions
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Worksheet
2 questions, 4 marks. Write your answers on paper, then check them.
Business documents
Cambridge IGCSE Accounting 0452 · 4 marks · papermunch.org
Name ______________________________ Date ______________
State who issues an invoice, and in which book of prime entry the buyer records it.[2]
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The seller issues it. The buyer records it in the purchases journal.
State two documents from which no entries are made in the books of account.[2]
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A debit note and a statement of account.
Answers: Business documents
- 1. The seller issues it. The buyer records it in the purchases journal.
- 2. A debit note and a statement of account.