Unit 10 Recording Financial Transactions Source Documents Unit 10 Recording Financial Transactions Mr. Barry BTEC Business Year 12

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. Barry BTEC Business Year 12

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. Barry BTEC Business Year 12

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. Barry BTEC Business Year 12

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 ordered They 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. Barry BTEC Business Year 12

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. Barry BTEC Business Year 12

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 12

Source Documents purchase order delivery note goods received note Invoice credit note statement of account remittance advice and cheque Mr. Barry BTEC Business Year 12

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 reason Cash Receipts – issued when payment is received. Could be in the form of a till roll or maybe hand written. Mr. Barry BTEC Business Year 12

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 Debits Standing Orders Bank Interest and Charges Credit Transfers (BACS) Mr. Barry BTEC Business Year 12

Purchase of inventory on credit Purchase Invoice 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 Mr. Barry BTEC Business Year 12

Invoices The seller of goods or services provide an invoice for the buyer This invoice will detail the following: Addresses Dates Reference Description of the goods or services supplied Value (Amount) Terms e.g. when is it due? Any discount? Mr. Barry BTEC Business Year 12

Credit Note Sent from the supplier to the buyer (customer) when an adjustment to the amount owed is required. Possibly due to: Calculation error Incorrect delivery Damage to goods Returned goods Goods lost in transit The 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 supplier Mr. Barry BTEC Business Year 12

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 transaction A list of goods purchased and price paid A total figure / deductions for discounts Amount received, any change issued Can be hand written Mr. Barry BTEC Business Year 12

Banking Documents Paying In Slip – contains details on funds paid into the bank, details include: Date of the paying in The name of the person who paid the payee the cheque (on back of slip) Specific details of cash amount paid in The 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 cheque The 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 12

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 fixed or variable payments to be made at the request of the third party Standing 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 borrowed Credit 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 12

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 Document Direct 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 12

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. Barry BTEC Business Year 12

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