1.

WHAT IS THE RECORD

All businesses need to keep records. In order to have what I believe to be a successful business you
need to have a business plan or model, appropriate business type, appropriate accounting method, a
good bookkeeper, and the ability to use all this information to your advantage. Part of this process
includes retention of records. Below I have given a brief description of what’s and why’s or records
keeping.

Monitor the progress of your business

Records will help you see how your business is doing. Are you improving? Which items are selling?
What changes should you make in your business? Accurate records help any size business. You need
to know how you are doing to increase your ability to succeed.

Prepare financial Statements

In order to properly prepare a profit and loss statement and balance sheets you need your records.

Identify the source of records

While in business you will work with many vendors and have possible have many sources of income
and expenditures. Proper receipts will help you separate taxable and nontaxable income and what
you’re true deductions will be.

Keep track of deductible expenses

In business things get busy and that is a good thing. Keeping receipts of all transactions will help you
to not overlook any possible deductions.

Prepare tax returns

Business records help recreate the picture of what your tax year was like. In order to reconstruct this
picture and come out with the best return legally possible you need to keep your records.

Support items on your tax return

You must always have records that backup your tax return. Many times IRS audits businesses and
you need to have the appropriate records to back up your tax return

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2. HOW LONG SHOULD KEEP THESE RECORDS

The IRS states that you must keep these records for as long as they may be needed for the
administration of any provision of the Internal Revenue Code. Generally you keep most records for
three years. If you have employees those records may be held for four years or longer. My
recommendation is to keep all tax records for at least a five year period after assessment. If you want
to be safe you can hold them closer to 7 years. If you have questions about receipts or bookkeeping
please reach out to our office. We are happy to provide a complimentary consultation and go over the
business tax services our firm offers.

All manufacturing systems are identified by their three key elements: inputs, processes and outputs.
Accounting manufactures outputs in the form of financial statement and financial reports for
business decision makers. It engages a process known as the double-entry bookkeeping system to
accurately capture and categorize inputs so that they can produce meaningful reports. The accounting
process relies on inputs in the form of data taken from source documents that are generated whenever
financial transactions occur.

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3. WHAT ARE SOURCE DOCUMENTS IN ACCOUNTING

Source documents is an accounting terms to describe the original records that contain the details that
substantiate the financial transactions that are entered into the internal accounting system of a
business. Typical source documents include sales invoices, cash receipts, cash register slip, credit
notes and deposit slip. Source documents provide the documentary evidence of a business deal or
accounting event and are a critical part of an audit trail that establishes the authenticity and tracking
history of an accounting system's financial records.

So, source documents then are the essential inputs that provide the details required by internal
accounting systems. They also assist in the internal control of the resources of the business. Source
documents ensure that there is documentary evidence to support the purchase or sale of items of
value and the receipt and payment of money. Source documents provide the evidence or proof that a
transaction has actually occurred which makes it difficult for people to misappropriate or steal cash
or other resource items from the business. These source documents are also required by both
company and tax auditors.

The details from the source document should be recorded in the appropriate accounting journal as
soon as possible after the transaction has occurred. After recording, all source documents should be
filed away in a document system where they can be retrieved at a later date if required. Government
tax law requires that these source documents are kept for a number of years (typically from 3-7years
depending on the country). In the event of an audit, these source documents should support the data
recorded in the accounting journals and the general ledger by providing an indisputable audit trail
from source documents to journals to general ledger to trial balance to financial statement.

In summary then, accounting source documents are required for:

1. Providing details of transactions to input into the internal accounting system on a month-to-month
basis

2. Providing evidence of the transactions recorded in the accounting system in the event of an end-
of-year financial audit

3. Satisfying the requirements of the tax law in regard to proof of income and expenditure.

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Information contained in a source document

A source document should describe all the key aspects of the transaction such as:

 The names and addresses of the entity buying/selling the good/services

 The date when the transaction occurred
 The amount of the transaction
 The amount of any taxes
 The nature and purpose of the transaction (i.e. descriptions)
 The special terms and conditions of the transaction (i.e. discount, payment and delivery
details)
 Authorized signature for payment or acceptance of goods/services

Common source documents Source documents are generally related to the particular activity as
shown in the table below:

Business Activity Source documents

Cash received by the business Cash receipt (copy), cash register tapes, bank
statement, bank deposit slip

Cash paid by the business Cheque butt, ATM or EFTPOS receipt, bank
statement, payroll records, cancelled cheque

Petty cash payments Petty cash Voucher, cash receipts

Business giving credit to customer Business invoice (copy), Business credit/debit

note

Business receiving credit from a supplier Supplier's original invoice, supplier's statement,
Supplier's debit/credit note, credit card
statement and receipts

Any activity not generating a document Memorandum

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A description of the source documents is provided below:

Quotation-

Quotations tend to be used when businesses do not have a standard listing of prices for products.

Purchase Order-
Let make its more natural. After you request the quotation from few suppliers, and then you found one
supplier that its quotation is compatible with you requirement, and you make the purchase order.

Sale Order-
Let say you are in the suppliers and you just received the order (purchase order) from your customer.
Now you create the Sale Order for warehouse or sale team to deliver the goods or service to your
customers.

Goods Received Note-

The supplier now deliver the goods to your warehouse and you are receiving them. You are preparing
the documents that list down the goods that you receiving. This documents called Goods Received
Noted

Goods Dispatched Note-

A document of the company that lists the goods that the company has sent out to a customer. The
company will keep a record of goods dispatched notes in case of any queries by customers about the
goods sent. The customer will compare the goods dispatched note to what they receive to make sure
all the items listed have been delivered and are the right specification.

Sales Invoice –

Used to record the goods/services details and the amount owing to the business by a customer. The
original goes to the customer with the copy held by the business.

Purchase Invoices –

Used to record the goods/services details and the amount owing by the business to suppliers. The
original is provided by the supplier to the business.

Credit Note –

Used by a business/supplier to correct an overcharge in the invoice

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Debit Note –

Used by a business/supplier to correct an undercharge in the invoice

Petty Cash Voucher –

Used as evidence of cash payment to another party

Cheque Butt/Stubs –

Used to record the amount paid on a particular numbered cheque to the payee.

Cash Receipts –

Used to acknowledge money received from customers and cash paid to suppliers.

Bank Statement –

Used as a summary of cash movements through the business bank account.

Memorandum –

Used as a note explaining a transaction if no other documents exist.

ATM Receipts –

Used as evidence that money was taken from the business bank account via the ATM

EFTPOS Receipts –

Used as evidence of a purchase from a supplier using the EFTPOS system.

Supplier’s Statements –

Issued by suppliers in regard to invoices unpaid at a particular date

Cash Register Tapes –

Automatically generated by the cash register and provides an unbroken sequence of cash
transactions and events

Bank Deposit Slips/Forms –

Used to record the banking’s deposited to the bank. The original is provided to the bank with the
copy retained by the business.

Credit Card Receipts –

Used to verify transactions on a credit card statements that relate to the business.

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Payroll Records –

Used to verify payments made to employees in the form of salaries and wages and includes
timesheets.

Canceled Check –

Used as an internal control to ensure that all cheques can be accounted for

Invoices vs. Purchase Orders

Invoices are sometimes confused with purchase orders. Purchase orders (POs) are before the
transaction, and invoices are after the transaction. Purchase orders record an order by a customer to a
vendor or supplier. An invoice, on the other hand, records the receipt of the product or service and,
as noted above, the terms of payment. Purchase orders are used by many companies as part of an
approval process. Some companies require purchase orders for products or services over a specific
amount.

The key difference between a purchase order and an invoice is that a purchase order confirms that an
order has been placed while an invoice requests payment for an order.

Here are all of the differences between each document:

Key Info Purchase Order Invoice

What it is Official confirmation of an Request for payment for an

order order

Who initiates it Purchaser Vendor

Who receives it Vendor Purchaser

When it is sent At the onset of an order After the order is complete per
the payment terms

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  Date purchase was made
 Name of the company
purchasing the goods or
services
 Description and quantity
of the goods or services
 Price
 Payment information
What it contains
 Billing address
 Purchase order number
 Shipping address
 Expected delivery date
Same information as on
purchase order, plus:
 An invoice number
 Vendor contact
information
 Credits or discounts
 Payment schedule
 Total amount due to the
vendor

What are the similarities between a purchase order and an invoice

While these documents are quite different, there are a couple of similarities.

Both documents are legally binding contracts. This means that the agreement has been made by both
the purchaser and the vendor, and that the actions they contain are required.

In addition, both the PO and the invoice include order details, mailing information, and price. The
invoice also includes an invoice number, vendor contact information, payment adjustments (credits
or discounts), payment schedule, and the total amount due to the vendor. The PO number is also
often included on the invoice as a reference.

If you’re looking for more information about purchase orders, read our blog post on the difference
between a purchase requisition and a purchase order.

Invoices and purchase orders are a vital part of a company’s purchasing process. Understanding the
roles that invoices and purchase orders play is important for anyone involved in purchasing goods or
services on behalf of an organization. The key difference between a purchase order and an invoice is
that a purchase order is sent from a purchaser to a vendor to place an order while an invoice is sent
from a vendor to a purchaser to request payment for an order.

Invoices vs. Bills

The difference between an invoice and a bill is the focus and standpoint. The invoice is created by a
supplier, and it is a statement of services or products produced and delivered to a customer, including
the amount owed. An invoice may be created before or after the product or service is received. It's
common for an invoice to be included with products being delivered, so the recipient can check off
the items to make sure they are all there.

A bill is a request for payment. A bill is usually considered from the customer's standpoint. It's
common to receive a bill without an invoice, as in a restaurant or retail store. A bill is usually given
with the expectation of immediate payment.
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4. THE SOURCES DOCUMENTS OF AL JAZERA FACTORIES FOR STEEL PRODUCTS
CO.LTD COMPANY

There are many business transactions occur every day and those of transactions are records and
control by different sources documents. The following is the Sources Documents of AL Jazera
Factories for Steel Products Co.Ltd company in Saudi that we can look accounting, finance audit,
bookkeeping, or accounting student how mange this company. Understanding those accounting
sources of documents are quite important and it may help they easy communicate to their works as
well as auditors. Source documents are as follows;

i. Delivery note
ii. Invoice
a. Purchase invoice
b. Sales invoice
iii. Receipt
iv. Purchase order
v. Quotation
vi. Credit note
vii. Material requisition

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DELIVERY NOTE

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The delivery note is a document that certifies the delivery of goods to the buyer, who must sign it to
make it clear that the goods have been delivered in accordance with the conditions established. The
use of this document is not mandatory, although in international trade is very common especially
when the exporter delivers the goods in the seller’s country and he needs a document proving
delivery. This document must be issued in a simple format that contains the following information:

 Data identifying the seller and buyer.

 Reference to the invoice.
 Number and description of the products.
 Date of issue of the document and date of delivery of the goods.
 Name, signature and stamp of the purchaser, accepting delivery of the goods in good condition.

This document has a dual function for the exporter: as a justification of the removal of the products
from its warehouse and as a proof of delivery to the importer so in that sense it is important that the
carrier gets a copy signed by the importer. To the importer, this document serves to verify that the
goods received match those listed on the purchase order or sale contract. For the carrier this
document is the proof of delivery of goods.

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INVOICE

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Two types of invoice,

I. Purchase invoice
II. Sales invoice

What are the advantages of using invoices?

You have a right to be paid for your efforts, and you can set your own payment terms.

These should be made clear at the start of a trading relationship, but it is the invoice that formalizes
your demand for payment. The use of an invoice has several advantages.

 It prompts payment. Where upfront payment is not required, the chances are that a customer
won’t pay you without receiving an invoice first. It’s rare to be paid for goods or services
provided before an invoice has been issued, with debts rarely settled voluntarily and without
a prompt.

 Invoices remind clients of the work completed or goods provided. It’s an itemized bill, so
a customer can see what they’re getting for their money.

 They’re a useful record-keeping tool. HMRC requires businesses to retain records for up to
six years, and the self-employed to keep evidence of sales, income, and expenses for five
years. Not having up-to-date and accurate archives of invoices issued and received can risk a
hefty fine from the Revenue.

 It’s an opportunity to send a positive message about your company and brand. This
applies to the document itself – how polished it looks, with a company logo, website address,
and use of professional language – and the invoicing process. Efficient invoice generation
and payment collection can improve customer satisfaction. Equally, poorly managed systems
can easily damage a company’s reputation.

What are the disadvantages of using invoices?

There are some potential downsides to using invoices, but these are mostly caused by poor
management and inadequate processes:

 A badly drafted, vaguely worded document can be wrongly interpreted or easily disputed,
delaying payment.

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  If product sales or the hours of work undertaken are not meticulously noted, an invoice can
appear approximate and could be challenged. A good invoice is clear, detailed, and precise.

 Invoices being issued late can encourage customers to be equally relaxed about settling the
debt. Demands should be raised immediately to impress upon the client the need for swift
payment.

When is invoicing not appropriate?

Invoices are not suitable for all types of payment. For example, if there is no ongoing relationship
with the customer or if payment is required upfront, an invoice wouldn’t be used.

Some industries use a lot of upfront payments for goods or services, such as retail and e-commerce.
Merchants within these sectors require instant payment before they hand over or dispatch physical
goods. Those operating in the hospitality industry, such as pubs, bars, and cafes, also often take cash
or digital payments from customers on the spot, so they rarely issue invoices.

Invoice include:

 The date that the invoice was created. Don't forget this. The date of the invoice starts the clock
ticking on the customer. If you have terms (a time limit for payment), you want to include the date so
everyone knows when the payment is due.

 Names and addresses of customer and supplier. If you're creating the invoice in accounting
software, you may only need the email address of the customer, but it's still a good idea to collect
and include the physical address, in case you need to send a real letter or document.

 Contact names of individuals at the two businesses (or business and individual). It's a good
customer relations rule to make sure you spell names correctly.

 Description of items purchased, either products or services, including prices and quantities. Often
you will have standard item descriptions and inventory numbers. But be as specific and detailed as
possible, when you create the invoice. This avoids confusion and "I didn't know" issues.

 Terms of payment. For example, the provider might specify "net 30 days," which means that the
entire amount is due within 30 days.

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Why do companies use invoices?

Companies use invoices for the following reasons:

1. They enable vendors to collect money

Most vendors don’t receive payment for a good or service until after an invoice is sent to the
purchaser. A phone call or email requesting payment won’t suffice.

2. They provide visibility into company spending

Invoices describe exactly what you’re getting for your money, which gives finance
departments transparency into what different departments buy.

3. They help manage payments

Invoices show what goods or services were sold, how much money has been paid to date,
and any outstanding charges. They help companies keep track of payments in a formal way.

Some of the benefits of invoices are similar to that of purchase orders.

1. Like POs, they are legally binding

An invoice shows that a particular good or service was provided and when payment is expected.
Invoices prove that businesses are charged for a good or service in case payment is not received.

2. Like POs, they are a key part of audit trails

Auditors require evidence of all money going in and out of businesses. Since invoices show
exactly what a business was charged for a good or service, they are a crucial part of this
evidence.

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PURCHASE INVOICE

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 They service to the customer.

 Start by identifying the customer. In some cases, they may also want to identify a sub-customer or
job within that customer's file.

 Include previous document numbers related to this sale, including any purchase order or sales
agreement or estimate.

 Identify the items sold and delivered. Usually, they would include the name of the product or
service, quantity (or time, for services) and rate (per item or per hour). If you are using online
software, the total for each item is calculated.

 Each item gets its own line, and the total of all lines is added.

 Next, they include information any deposits already made by the customer or any discounts applied
to this invoice.

 They may want to offer customers different payment methods, possibly giving a discount for paying
in cash.

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SALE INVOICE

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Sales invoice allows to issue and manage customer's invoices.
Sales Invoice is an itemized statement of goods or services provided to a business partner. It
indicates the quantity and price of each product delivered.

The sales revenues can be recognized as soon as the sales invoice is accounted, however if a revenue
deferred plan is configured it is possible to deferred the revenue recognition as required.

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RECEIPT

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Official Receipt is a document confirming confirmation that a payment has been received. This is
usually in respect of cash sales till receipt from a cash register.

Official Receipt normally use for cash transaction. They purchase some small material by cash, once
they made payment, the cashiers normally issued the documents to confirm the amount they received
for which items being paid.
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PURCHASE ORDER

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Why do companies use purchase orders?

Whether it is in a small business or a large organization with a full purchasing department, purchase
orders are used for several reasons:

1. They set clear expectations

POs enable purchasers to clarify their needs to vendors. Both parties can use them in case orders
are not delivered as expected.

2. They help manage orders

POs give procurement, finance, and operations teams’ official documentation of incoming or
pending deliveries, enabling them to track and manage orders more effectively.

3. They help with budgeting

Once a PO is created, purchasers can factor these costs into company budgets and therefore,
spend more wisely.

4. They are legally binding

In the absence of a formal contract, a PO can serve as a legally binding document, but only after
it is accepted by the vendor.

5. They are a key part of audit trails

Auditors are on the lookout for financial discrepancies. Issuing, processing, and recording POs
ensures you have what you need to fend off auditors.

The benefits above are geared towards purchasers, but POs are important documents for vendors as
well. Vendors use them for order fulfillment and payment processing.

Read our Purchase Order Process blog post to learn how a purchase order request turns into a
purchase order, when businesses need purchase orders and when they don’t.

A purchase order is the first contract to the seller stating that the importer is ready to commit to
purchase the goods. A purchase order must be taken seriously since it covers important details
between seller and buyer. As an importer or exporter all the negotiations must be settled before the
purchase order is issued.

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Businesses are often satisfied with verbal commitments or email threads when making orders.
However, there are more to purchase orders than the order itself.

They help Avoid Duplicate Orders

If one person in company is in charge of making purchases, keeping track of orders may be easy. But
as you scale up, purchase orders can keep track of what’s ordered, by whom and when.

They’re required for Some Financial Audits

Certain financial audits require evidence that managers approved company’s purchasing decisions.
Purchase orders are the ideal documents for these audits.

They Can Help to Avoid Surprise Price Increases

If a supplier changes prices between the date of order and date of delivery or invoice, a purchase
order clarifies the agreed upon price for both parties and clears up potential miscommunication.

They Help to Keep Track of Incoming Orders

It may seem obvious, but having a well-organized purchase order system makes it easy to identify
what products are coming in at any time, making inventory and shipping management simpler.

They Help Keep Your Invoices in Check

When making repeat orders of identical or similar products, matching invoices to orders can be
tedious without documentation. Including a purchase order number on the invoice avoids this
confusion.

They Ensure Clear Communication

At the core, purchase orders clearly communicate all the details of a purchase. By having every detail
clarified, laid out and documented, you avoid potential conflict or confusion in the future

They’re Legal Documentation

If there are ever any disputes over what was ordered, or the agreed upon price, purchase orders serve
as legal documentation that can be enforced. Best of all, they protect both parties.

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What are the terms and critical points you need to negotiate before placing a purchase order?

1- Price:

Price of the product or service you are purchasing is the most important point to negotiate. Clearly
described on the PO form the product you are buying and the price per pieces. Always negotiate the
lowest price before importing and also compare to same quality elsewhere.

2- Quantity:

The quantity you are ordering is another point to negotiate. Larger orders might help you to obtain a
better price. Clearly list the quantity ordered for each item you are buying and if any quantity
variance is acceptable it must be marked clearly. For example “5 % more or less variance in
shipment quantity is allowed. This is important, especially for the industries where manufacturing
the exact quantity is not possible, like garment manufacturing.

3- Quality:

It is important, especially when buying from a new vendor to request a sample of the product you
want to buy. It is always better to check the quality before final shipping. You can hire a company
who can examine the goods before the goods are shipped.

4- Description:

Clearly describe the products you are buying. Size or measurement, color, details, material, etc. must
be marked clearly on the purchase order. Describe in detail the product you are buying.

5- Latest ship date:

The latest ship date must be clearly marked on the purchase order. Deciding a ship date is an
important point for your on time delivery to your final consumer. For example, if you are importing
holiday or seasonal products the imported goods must arrive on time or you will not be able to sell
the product. For example, if you are importing school products you need them in your store before
school starts. Also, always check with your freight forwarder the transit time from ship port to
destination port for your arrival date calculation and consider unexpected delays like US customs
hold or export problem at origin port or any other delays might happen during transportation.

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6- Mode of transportation:

It is a very important key point. I have seen many cases where the purchase order wasn’t clearly
marked shipment point or shipment method. If your term is work clarifies with item by item which
charges will be under your account as there are many different costs involved. Like customs
clearance at origin, port charges, trucking, local export documentation charges. Since each country
regulation is different and work charges might vary.

7- Terms of sale and method of payment:

There are different terms for more detail which term is beneficial for your company and which term
is safer for payment transaction,

8- Marking requirements:

US customs and other government agencies have specific marking requirements. Make sure your
purchase order clearly describes the marking requirements for the items or the packaging. Each
product imported into the USA needs to have different marking requirements. For the marking
requirements, please check with US customs or other government agencies before importing

9- Special Instructions:

Clearly mark all special instruction you have for the manufacturer like packaging, labels or any other
special instructions. For example the wrong barcode label placement on the box can be a big cost to
your company. Once you receive the products you might need to repack the goods because of
missing instruction you didn’t provide on the purchase order.

Most importantly, don’t forget to proofread your purchase order before you sent to the manufacturer

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QUOTATION

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It is a Source of Accounting Document that sent to a customer by a company stating the fixed price
that would be charged to produce or deliver goods or services if the customer accept. Quotations tend
to be used when businesses do not have a standard listing of prices for products. For example when
the time, materials and skills required for each job vary according to the customer’s needs.
Quotations can’t be changed once they have been accepted by the customer.

To issue the quotation, most of the company require the specific requirement from the customers first.
For example, type of product, and number of units they expected to orders. In normal case, the
company that issued quotation set the specific period of time that the prices are eligible for order.
One of the most important rule of quotation is it is using by the requesting company to make the price
comparison. Some companies required two or three quotation for the certain amount of purchases. It
is one of the most important of accounting documents you should well understand about.

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CREDIT NOTE

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Credit note is one of the source documents and works in combination with invoices therefore, credit
note (and also debit note) must be taken serious as they can affect entity’s rights and obligations and
careless use of such documents may materially misstate financial statements. Due to same reason
such source documents play important role and auditors obtain sufficient appropriate audit evidence
in respect of credit and debit memorandums.

A credit note is a source document providing evidence that a credit entry has been made in the
financial records for specific reason which is explained on the face of this business document.

Although credit note is sent by supplier as a result of accepting sales return. But this does not mean
that it is always the case. For example if a previous invoice sent by supplier is undercasted or
undervalued or for whatever reason the amount involved is lesser than actual and needs correction. If
this mistake is corrected, supplier’s assets in terms of receivables will increase and on the other hand
customer’s liability towards supplier will increase. To record increase in receivables supplier will
debit the account thus giving rise to debit note and customer will credit the payables account thus
giving rise to credit note and so debit note will be sent by supplier to customer and credit note will be
sent by customer to supplier.

Credit note is also known as credit memo or credit memorandum as it only notifies about the entry
made in the financial records of party to the transaction. Although credit note is often discussed
while discussing sale returns (return inwards) or purchases return (return outwards) but credit note is
also used in banking sector and we will shed some light on such use of credit note as well in the
discussion below.

In buy and sell transactions, whether it is a credit transaction or cash, credit note is used basically to
modify the invoice already issued and such modifications may be necessary due to following
reasons:

 Return of goods due to either of the following reasons:

o Damaged goods or expired goods
o Not according to specifications mentioned in the order
o More than ordered
o Any change in quantity of items in previously placed order

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 Mistake in invoice
o Arithmetic mistake
o Misapplication of discount rate
o Misapplication of sales tax requirements
o Any other mistake giving rise wrong valuation of transaction involved
 Cancellation of order i.e. no sale or purchase transaction took place
 Waiving off partly or whole of the sale consideration involved

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 MATERIAL
REQUISITION

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A typical materials requisition form has the job number, date of request, material description,
quantity, and proper management signatures. Depending on the size of the company, request forms
are filled out weekly, daily, or even hourly.

A materials requisition form is a source document that the production department uses to request
materials for manufacturing process. The production manager usually fills out the materials
requisition form and delivers it to the materials or storage department where all of the raw materials
are stored. Once the materials manager signs off on the request, the raw materials are moved from
storage and placed on the production floor.

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