Accounting Chapter 6- Business documents Grade 9 IGCSE

Business Documents

Business documents are used to make entries in the accounting records of a business.

The main business documents are:

1. Invoice
An invoice is a document which is issued by the supplier of goods on credit (seller) to their
customer (buyer), showing the details of the items purchased, the quantities and the price at
which the goods were supplied.
It also shows the trade discount, which is shown as a deduction on the invoice.
Trade discount is a reduction in the price of the goods given to the customer. This rate of
discount often increases according to the quantity purchased, so this encourages customers
to buy in bulk (large quantities).
The terms of cash discount are also shown but it is not shown as a deduction from the
invoice.
Cash discount is a reduction in the price given to a customer if the account is settled within a
time limit set by the supplier.

Accounting entries in the books of the supplier (seller)

Customer’s account debited

Sales account is credited

Accounting entries in the books of the customer (buyer)

Purchases account debited

Supplier’s account credited

2. Debit note
A debit note is a document issued by the purchaser of goods on credit (customer) to request
the supplier for a reduction in the invoice received.
A customer may issue this document when he returns the goods to the supplier (purchases
return) on the following situations:
• Goods were not as ordered (wrong goods delivered)
• Faulty or damaged goods
• Goods were overcharged

A debit note is only a request to the supplier to reduce the total of the original invoice,
therefore no entries are made by the supplier nor the customer in their respective accounting
records.

3. Credit note
A credit note is a document issued by a seller of goods on credit to notify of a reduction in an
invoice previously issued.
When the customer returns the goods and issues a debit note, the supplier confirms the
same and issues a credit note for those goods which have been returned.
The customer keeps the original credit note and uses it to record ‘purchases return’ whereas
the supplier keeps a copy and uses it to record ‘sales return’.

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Accounting Chapter 6- Business documents Grade 9 IGCSE

Accounting entries in the books of the supplier (seller)

Sales return account debited

Customer’s account credited

Accounting entries in the books of the customer (buyer)

Supplier’s account debited

Purchases return account credited

4. Statement of Account
A statement of account is a document issued by the seller of goods on credit to summarise
the transactions for the month.
At the end of each month, the supplier may send the customer the summary of all the
transactions during that month between the supplier and the customer.
In addition to the names and addresses of the supplier and customer, it also contains the
following details:
• The date
• The balance owing at the start of the period (that is the amount already owed by the
customer at the start of the month (opening balance)
• Invoices and credit notes issued (invoices are added and credit note amount is
deducted as they are goods returned) (sales return for supplier)
• Payments received (payment received in cash or by cheque is deducted as they are
amounts which is already paid by the customer)
• Cash discounts allowed (deducted, if paid)
• The balance owing at the end of the period (this is amount owed by the customer to
the supplier at the end of the month)

No entries are made in the accounting records of both the customer and the
supplier as it is only a reminder to a customer of the amount outstanding.

5. Cheque
A cheque is a method of payment. It is a written order to a bank to pay a stated sum of
money to the person or business named in the order.
Cheques are issued by the bank and the customer is required to fill the necessary details of
date, amount and payee (the person or business to whom the money is to be paid)

Accounting entries:

In the cashbook of the supplier:

• Bank column (money received into the bank) and discount allowed column

In the cashbook of the customer:

• Bank column (money paid out of the bank) and discount received column

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Accounting Chapter 6- Business documents Grade 9 IGCSE

6. Receipt
A receipt is a written acknowledgement of the money received and act as a proof of
payment. When goods are sold on cash basis, the customer is usually provided with a
receipt.