Recording of business transactions and events on documents either hard or soft form. These documents are called source documents in accounting terms—for example, invoices, credit or debit notes, purchase orders, etc. Whenever, business activity takes place like selling or purchasing inventory, paying or receiving cash or cheques. All these activities need to be recorded on documents for storing business information. These documents are essential sources of information for business decision-making.
Some common source documents used for recording business information are the following.
- Quotation
- Purchase order
- Sale Order
- Invoice
- Goods received note
- Goods dispatch note
- Credit notes
- Debit notes
- Remittance advice
Qoutation
The quotation is a written document that contains the company’s product range and its price. When customers approach suppliers to buy goods or services. Suppliers usually present quotations to customers so they can make decisions easily. This is the first step in the buying and selling cycle of business.
Purchase Order
Once the customer decides to purchase any goods or services, they raise the Purchase order and send it to the supplier. Purchase order only contains information regarding several items and specifications of products. Procurement departments usually raise purchase orders they keep one copy with themselves, and forward one copy to the warehouse and seller. The purpose of sending a copy to the warehouse is to establish internal control. When the warehouse manager receives goods he or she can match the product received with the purchase order raised by the procurement department.
Goods Dispatch Note
Goods dispatch note issued by supplier to customer. It contains a list of products that the supplier has transferred to the customer. When customers receive goods, they acknowledge a copy of the goods dispatch note and send it back to the buyer.
Goods Received Notes
After receiving goods from the supplier, they match the purchase order with the quantity received. prepare a ‘Goods received note’ and send copies to the supplier and procurement department. The warehouse department is to flag any difference between the purchase order and the goods received note to the procurement department.
Invoice
Once the supplier delivers goods or services to the customer and the customer acknowledges the goods dispatched note, the supplier creates an ‘invoice’ and sends it out to the customer. The primary purpose of an invoice is to prompt the customer for payment. The standard invoice contains the following information.
- Business address and legal name of buyer and seller
- Due date of payment
- Quantity and unit price of product
- Any discount offered
- Rate of VAT and total gross amount payable
- Seller bank account details, Account number, IBAN, etc.
Invoices are mostly sent to the purchasing department, whereby they match the invoice with other documents like purchase orders and goods received notes. They request the supplier to send a revised invoice if there is any discrepancy. The procurement department combines purchase orders, goods received notes, and invoices and sends complete documents to the accounts payable department for payment of invoices.
Voucher
The accounts payable department creates an internal document called a voucher for each invoice. Each invoice is assigned a unique voucher number. The creation of vouchers is necessary before making any payment to vendors. The voucher is deemed to be incomplete without an authorized purchase order, goods received note, and valid invoice.
The voucher is prepared by the account payable clerk, reviewed by the account payable accountant, and authorized for payment by the account payable manager. Eventually, vouchers are forwarded to the treasury department for final payment.
Debit Note
If the customer either overpaid any invoice by mistake or returned any goods due to any reason, they usually send a document called a ‘Debit Note’ to the supplier. The main purpose of issuing debit notes is to request suppliers to issue credit notes.
Credit Note
‘Credit Note’ is sent by the supplier to the customer. This is acknowledged by a supplier that goods return note and overpayment by customer. This is sometimes called a negative invoice.
Remittance advice
Remittance advice issued by the customer and sent to the supplier on payment of invoice. For good practices each invoice payment there is separate remittance advice that needs to be issued. It is useful for the supplier to track which invoices are paid and credit notes offset.