Source Documents - PowerPoint Presentation

Slide1

Source Documents

Unit 10 Recording Financial Transactions

Mr. Barry

BTEC Business Year 12Slide2

STARTER ACTIVITY

Write down on post-its all the items that a school might want to buy & who they might get these

from?Also write how the school will pay for these items

In Business transactions can be CREDIT transactions or CASH transactions

Mr. BarryBTEC Business Year 12Slide3

Learning Outcomes

TO UNDERSTAND:The nature and purpose of source documents

The stages in a business transaction

Which documents are used in a business transaction

Mr. BarryBTEC Business Year 12Slide4

Source Documents

The financial process ALWAYS starts with a source document.

The document is used to provide FIRST ENTRY (the prime entry) in the financial records. Provide evidence that a transaction has taken place.

It is vital that you can describe the details shown on each source document and the purpose for its issue.You should be able to write up the appropriate subsidiary book for each type of source document.

Mr. BarryBTEC Business Year 12Slide5

Source Documents

Help to ensure that the right goods (type and quantity) are sent to the right place, at the right time.

They provide a means of checking (good management and stewardship) that deliveries of goods match those that have been orderedThey can be used to clarify misunderstandings.

Most large businesses are required to have an AUDIT of their accounts. This WILL involve checking source documents against transactions. They need to be kept for 6 years (part of UK contract law)

Mr. BarryBTEC Business Year 12Slide6

Source Documents

When a transaction takes place between two businesses there is one document that starts the process and allows us to put something into the books of original entry (day books)

This is the source document.

Mr. BarryBTEC Business Year 12Slide7

Examples

Source documents include:

Invoices, credit notes, cheque counterfoils, paying-in slip counterfoils, cash receipts, till rolls, information from bank statements such as standing orders, direct debits, BACS, credit transfers, bank charges

Mr. Barry

BTEC Business Year 12Slide8

Source Documents

purchase order

delivery note goods received note Invoice

credit note

statement of account remittance advice and cheque

Mr. Barry

BTEC Business Year 12Slide9

Source Documents – an overview

Invoice

– a document that tells the buyer how much is owed for goods that have been purchased.Credit Note

– a document used to confirm that the customer has been overcharged or has returned an item,

stating the allowance due to the customer and the reasonCash Receipts – issued when payment is received. Could be in the form of a till roll or maybe hand written.Mr. Barry

BTEC Business Year 12Slide10

Other Source Documents

Banking Documents – Paying in Slips – When cash or cheques are paid into the bank, the details are recorded on a paying in slip

counterfoil. Also Cheque Counterfoils are records kept by the payee (the cheque stub).

Information from Bank Statements – payments and receipts may be debited or credited directly through the bank account.

Direct DebitsStanding OrdersBank Interest and ChargesCredit Transfers (BACS)Mr. Barry

BTEC Business Year 12Slide11

Transaction

Source Document

Purchase of inventory on credit

Purchase Invoice

Sale of goods on credit

Sales invoice

The return of purchased inventory to your supplier which were originally bought on credit

(Purchases) Credit Note (you can’t get cash back if you haven’t paid for it!)

The return of sold items to you from your customer which were originally bought on credit

(Sales) Credit Note

The payment for petrol by cash

Receipt

Money paid into the business bank account

Bank Paying in Slip

Cheque

sent to pay a supplier

Cheque

Counterfoil (the stub left in the book)

Direct Debit or Standing Order  payment for Utility bill

Bank Statement

Credit Transfer received from a credit customer

Bank Statement

Mr. Barry

BTEC Business Year 12Slide12

Invoices

The seller of goods or services provide an invoice for the buyerThis invoice will detail the following:

Addresses

DatesReference

Description of the goods or services suppliedValue (Amount)Terms e.g. when is it due? Any discount?Mr. Barry

BTEC Business Year 12Slide13

Credit Note

Sent from the supplier to the buyer (customer) when an adjustment to the amount owed is required.

Possibly due to:Calculation errorIncorrect delivery

Damage to goodsReturned goodsGoods lost in transitThe details included on a credit note are exactly the same as an invoice.

The credit informs the buyer how much has been deducted from the amount owed to the supplierMr. Barry

BTEC Business Year 12Slide14

Cash Receipts

Payment made by the buyer, the seller will issue a cash / payment receipt e.g. till roll print out.Includes:

Name / address / Date and time of transactionA list of goods purchased and price paid

A total figure / deductions for discountsAmount received, any change issuedCan be hand written

Mr. BarryBTEC Business Year 12Slide15

Banking Documents

Paying In Slip – contains details on funds paid into the bank, details include:

Date of the paying inThe name of the person who paid the payee the cheque (on back of slip)

Specific details of cash amount paid inThe total amount of cash and cheques

The counter foil is the ‘tear off’ section of the slip (left hand side). This is stamped by the bank teller and retained by the payee as a receipt.Cheque Counterfoil – contains details of the cheques being drawn (paid out). Includes:Date of chequeThe payee (the person / org that is being paid)The amount of the cheque

Cheque Number (normally printed onto the counterfoil / ‘stub’)

Mr. Barry

BTEC Business Year 12Slide16

Bank Statement

Payments may be debited and credited directly through the bank account. Source Document for:

Direct debit – where authority is granted by the business to a third party (for example a supplier) for f

ixed or variable payments to be made at the request of the third partyStanding orders – where payment is fixed is made at regular intervals by the bank on the instruction of the business.

Bank interest and charges – where the bank processes its charges for ‘maintenance’ of the bank account or the funds invested or borrowedCredit transfers – where money has been put into the bank account of the business by a third party, BACS (Bankers Automated Clearing System) is used as an automatic method.

Mr. Barry

BTEC Business Year 12Slide17

Plenary Questions

State 4 reasons for using source documents.State 4 pieces of information that you would expect to find on a source document

Complete the following:

Transaction

Source DocumentDirect Debit payment for rent

Cash Paid into the bank

Goods

purchased on credit from a supplier

Credit for goods returned from a customer

Cheque paid to a supplier

Credit transfer receipt from a customer

Cash payment to the window cleaner

Goods sold to a customer on credit

Mr. Barry

BTEC Business Year 12Slide18

Recording Cash Discounts (Double Entry)

Discount Allowed – to debtors (people who OWE the business money)

Cash Discount is taken by the debtor as an incentive to pay earlier than credit terms agreed (increases cash inflow). A % is deducted from the total invoice amount.

For a brief overview of how this is accounted for through the double entry system (to be re-visited)

Mr. BarryBTEC Business Year 12Slide19

Recording Cash Discounts (Double Entry)

Discount Received – this is when the business receives a discount for early payment to their creditor(s) e.g. a supplier that the business OWES money to for purchases made but not paid for yet.

Make notes on the example and notes given including the revision summary.

Mr. Barry

BTEC Business Year 12