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48 4: Sources, records and the books of prime entry ⏐ Part B Accounting systems and accounts preparation
1 The role of source documents
Source documents record business transactions. Examples are invoices, sales and purchase orders, wage slips, credit
notes, goods received notes, till rolls etc. They are the source of all information for the financial statements.
Business transactions are sales or purchases, the paying or receiving of money or recognising that money is owed or owing.
1.1 Sales and purchase orders
A business will record its customer's requests for goods or services on a sales order. Purchase orders record a
business's requests to its suppliers for goods or services.
1.2 Invoices
An invoice relates to a sales order or a purchase order.
(a) When a business sells goods or services on credit to a customer, it sends out an invoice. The details on
the invoice should match up with the details on the sales order. The invoice is a request for the customer
to pay what he owes.
(b) When a business buys goods or services on credit it receives an invoice from the supplier. The details on
the invoice should match up with those on the purchase order.
The invoice is primarily a demand for payment, but it is used for other purposes as well. Since it has several uses, an
invoice is often produced on multi-part stationery, or photocopied, or carbon-copied. The top copy will go to the
customer and other copies will be used by various people within the business. The following information is usually
shown on an invoice.
• Invoice number
• Name and address of the seller and the purchaser
• Date of the sale
• Reference number of the sales order (if applicable)
• Description of what is being sold
• Quantity and unit price of what has been sold (eg 20 pairs of shoes at $25 a pair)
• Details of trade discount, if any (eg 10% reduction in cost if buying over 100 items)
• Total amount of the invoice including (in the UK) any details of VAT
• Sometimes, the date by which payment is due and other terms of sale
1.3 Credit notes
A credit note reduces or cancels an invoice because the goods or services were not received or were rejected as
substandard, or there was an error on the invoice. A credit note is sometimes printed in red to distinguish it from an
invoice. Otherwise, it will be made out in much the same way as an invoice.
A debit note is issued to a supplier to formally request a credit note.
1.4 Goods received notes
Goods received notes (GRNs) record a receipt of goods, most commonly in a warehouse. Often, the accounts
department will want to see the relevant GRN before paying a supplier
'
s invoice. Even where GRNs are not routinely
used, the details of a consignment from a supplier which arrives without an advice note must always be recorded.
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