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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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