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Introduction to financial accounts

Accounting is the art and science of recording, summarizing, classifying, analyzing and interpreting business transactions.

Why do we study accounts?

  • To equip students with basic knowledge that will enable them understand the principles of accounting problems.
  • To enable students understand the importance of source documents.
  • To equip students with knowledge that will enable them understand categories of financial transactions and their recording.
  • To learn to be neat. It encourages students to develop neatness.
  • To facilitate the understanding of accounting techniques.

Book keeping

This is careful recording of business transactions in monetary terms ie recording must be made in monetary terms but not quantity.

It involves the recording, posting and processing of business records, accounting goes beyond and involves the analysis and interpretation of transactions recorded ie book keeping is part of accounting.

Importance of book keeping

  • Book keeping helps the business in calculating the profits or losses made during a given period
  • Book keeping helps to provide information on credit transactions. The business is able to keep track and follow up all its debtors and also keep proper records of all creditors for accurate payment
  • It acts as a control tool i.e allows a business to keep accurate data concerning all its resources and also proper information on its expenses and income for proper decision making
  • The book keeping information guides on tax assessment. The tax authorities are able to calculate the exact amount of tax to be paid by an entrepreneur. This helps to minimize over or under taxation
  • The records kept help in planning process. A business enterprise can formulate its plans basing on the present and past accounting records
  • The records are used by the owners to decide whether to apply for bank loan or not. Banks usually look at the records of a business to determine whether to provide a loan to the business or not
  • The records help in determining the financial position of a business from the records a business is able to prepare the profit and loss accounts and balance sheet which shows the results of operation and financial position
  • It helps the public or new investor who may want to invest in the business to get information on the business and therefore take an appropriate decision whether to buy shares in the business or not
  • Book keeping helps a business to keep track of its transactions and know what transpired in the business operations

Users of accounting information.

Internal users

  1. These need accounting information in order to make and control decisions, profit planning and control of activities.
  2. Internal auditors. These require accounting information so as to ascertain whether the books of accounting have been well prepared and detect error and fraud.
  3. These require information in relation to profit sharing for better pay, job security. Ie knowing whether the business is still strong to continue existing. Also as a basis to agitate for salary increment

External users

  1. They need to know the credit worthiness of the business ie whether it is capable of paying its debts and to determine the amount of credit that can be given to the business and credit period it can allow.
  2. Potential investors. Need accounting information in order to be able to decide whether investing in a company is worthwhile by analyzing past and projected financial performance before they can buy share in it.
  3. The government requires evidence of the business transactions in terms of sales, investment and liquidity for purpose of taxes.
  4. Need to know that the business can continue to supply them into the future. This is especially true if the customer is dependent on a company for specialized supplies
  5. They would be very much willing to know the financial position of the business before giving any assistance.
  6. Banks or lenders. These would wish to know whether the business will be capable of catering for debts in an agreed period of time. E.g interest payable, repayments etc.
  7. The general public. The community would wish to know a financial position of business and to know the extent to which the business is concerned about their welfare, provision of employment opportunities etc.
  8. These need accounting information of firms in the same industry whether they are performing poorly or fairly in comparison with other players in the same business.
  9. Book keeping information is very important to both entrepreneur and management in decision making so as to manage the business property. Such information could be used to determine
  • Whether to expand the business or introduce a new product so as to get new customers and increase market share.
  • Whether to apply for a bank loan in order to acquire more capital, assets or working capital.
  • Whether to increase or decrease price of the products in order to increase profits.
  • Helps in keeping track and following up business debtors.
  • Helps in keeping track on business creditors and pay them as per agreed terms and conditions and if possible enjoy the discount offered.
  • The amount of tax payable is based on the performance of business and thus can be determined by information in business records.

Business transaction.

A transaction is any business activities that involves the receipt payment of money (exchange of value) through the purchase or sale of goods and purchases and settlement of payment may be at the time the transaction takes place or at a later date.

It refers to any business dealing between two or more people who involves physical transfer of goods and services in exchange inform of either money or other goods and services.

Cash transaction. Is when goods are purchased and sold on cash basis, these transactions are called cash transaction. In cash transactions. A business pays cash when goods are delivered by the supplier. Similarly a business receive cash when goods are sold to the customers. The two situations are referred as cash purchase and cash sales respectively.

Credit transactions are those transactions when cash is not paid or received at the time of transaction. In this case, cash is received or paid after a specific period from the date of transaction.

When credit transactions are made, a business will have some debtors and creditors.

Debtors. Are those persons or organisation to whom goods are sold on credit basis. They owe money to a business. Money due from debtors is considered as current asset.

Creditors. Are those persons or organisation from whom goods are purchased on credit basis. Money due to creditors is taken as current liabilities.

ASSETS AND LIABILITIES.

Assets and liabilities of any business enterprise are always equal to each other. The two fundamental accounting terms are explained as under.

Assets.

Assets means anything of value owned by a business. These may be classified as under;

  1. fixed assets
  2. current assets

Fixed assets. Fixed assets are those assets which are retained for use in the business for a long period of time. Examples include: premises, buildings, plant and machinery, motor vehicles, furniture and fittings and land. These assets are obtained at the start of business. These assets are required to conduct business transactions smoothly.

Intangible assets, these are assets which have no material existence e.g good will, patent right and copy rights, franchise, computer software. If a long established business is purchased by a person then he is supposed to pay something for the reputation of this business.

Current assets. These are short term. These are either inform of cash or can easily be converted to cash in the short period. Some examples of current assets are stock held for resale, debtors, and cash in hand or cash at bank.

Current assets many include also prepayment and payments in advance and incomes outstanding. E.g prepaid rent, prepaid electricity, and outstanding income.

These are used to meet the day to day requirements of the business. These assets provide the liquid resources for the purpose of making payment to the creditors and to the employees.

Liabilities.

Liabilities mean the financial obligation of a business. These may be classified as under;

  1. long term liabilities
  2. current liabilities

Long term liabilities or fixed liabilities. These liabilities are payable at a date more than one year form the balance sheet date. These liabilities consist of capital and long term loans. Capital introduced by the owner is intended to remain in the business for as long as it continues to exist. They also include, debentures, mortgages and loans (10 years, 5 years)

Current liabilities.

These are payable by the business for a short period of time. E.g creditors. Bank overdraft, outstanding expenses, taxation payable.

Balance sheet. Is a financial statement prepared to show the position of the business as at a given date. It shows the value of assets and liabilities of that business. The assets and liabilities of a business must always equal to each other. It means the total of assets must be equal to the total liabilities.

Capital. It means a claim by the owner against business. It represents the amount invested by the owner in the business. When a person wants to start a business, he is required to invest money in that business.

The capital is used to buy fixed assets like machines, tools, motor van etc.

Types of capital.

Equity capital. The capital invested by the owner of a business plus any profits attributed to owners is known as equity capital.

Loan capital. Is the amount borrowed by the business. The providers of loan capital are normally paid a fixed rate of interest and they do not share in the profit of a business.

Working capital. May be defined as the difference between current assets and current liabilities of a business. There should be enough working capital for the smooth running of a business.

Capital employed. The term capital employed is used in two different meanings.

  1. Gross capital employed.
  2. Net capital employed.

Gross capital employed consists of fixed assets plus current assets. Net current assets mean current assets minus current liabilities. The term capital employed is normally used in the sense of net capital employed.

Sources of capital

From the above discussion, we can conclude that capital to start a business may be obtained from.

  • personal resources
  • borrowing from financial friends or banks
  • trade credit
  • Bank overdraft.

Book keeping equation.

The fundamental equation of book keeping is the equality between assets and liabilities. It is expressed as under

Liabilities = Assets

(L)     =    (A)

The above equation can now be expressed as

Capital         +       Liabilities               =       Assets

(C)              +       (L)                        =       (A)

Or

Capital         =       Assets          –        Liabilities

(C)              =       (A)              –        (L)

Or Capital = Net assets

Net worth = Net Assets

The net assets of a business are referred to as the net worth of that business. It represents owner’s claim on the business. It is also called owner’s equity.

The value of assets, capital and liabilities may change but the equality of the two sides will always be true. The business transactions will affect the position of assets and liabilities over a specific trading period.

The balance sheet is prepared in the basis of the accounting equation which states that

Assets = capital + liabilities

Calculate the capital using the accounting equation.

Example 1

Given that;

Stock      shs 10,000

Debtors   shs 12,000

Land       shs 60,000

Cash       shs   8,000

Creditors shs 50,000

Capital = A – L

Capital = shs 90,000 – shs 50,000

Capital = shs 40,000

Example 2

The following balances were extracted from the books of A. Smith as at 31st dec 1998.

Loan from bank      shs   50,000

Creditors               shs   10,000

Office machinery   shs 200,000

Stock of goods       shs   35,000

Debtors                 shs   45,000

Cash at bank         shs   30,000

Capital = A – L

Capital = 310,000 – 60,000

Capital = shs 250,000

HOW TO PREPARE A BALANCE SHEET.

There are various ways of preparing a balance sheet.

Use order of liquidity.

Is the presentation of items in the balance sheet according to how easy it is to convert them into cash. Ie from current assets to fixed assets and from current liabilities to long term liabilities.

Order of permanency.

Here items are arranged in the balance sheet according to how permanent they are to stay in the business. Ie from fixed assets to current assets and from fixed liabilities to current liabilities.

Format of a balance sheet.

A balance sheet must have a tittle with name of a business, name of the statement and date of preparation.

Assets are put on one side and liabilities on the other side.

Current assets are separated from fixed assets and so is the case with liabilities.

Example one

The following balances were extracted from the books of A. Smith as at 31 Dec. 1998.

                                                               Shs

Capital                                               250,000

Loan from bank                                    50,000

Office machinery                                 200,000

Creditors                                              10,000

Stock of goods                                      35,000

Debtors                                                45,000

Cash at bank                                        30,000

Required – prepare A. Smith balance sheet as at 31.dec.1998. Showing

  • long term liabilities
  • current liabilities
  • fixed assets
  • current assets
  • net worth

We can find out net worth from the above balance sheet as under

Total assets = shs 310,000

Outside liabilities = Loan + creditors

50,000 + 10,000

=  shs 60,000

Net worth = Total assets – outside liabilities

Net worth = 310,000 – 60,000

=  shs 250,000

Now it is clear that net worth of a business means capital or claim of the owner on the assets of a business.

Revenue and capital expenditure.

The expenditure incurred for conducting a business may be classified

  1. Revenue expenditure
  2. Capital expenditure

Revenue expenditure is incurred for making normal trading transactions. This expenditure is incurred on the purchase of goods for resale; payment of wages and salaries, rent, water and electricity bills and so on. This expenditure is deducted from the total income of trading period for determining the profit for that period.

Capital expenditure is incurred in the acquisition or addition of fixed assets. This expenditure is not deducted from the income of any trading period while calculating profit for that period. This expenditure is represented in the form of fixed assets in the balance sheet of any business enterprise.

Deferred revenue expenditure is that expenditure the benefit of which will be received in future periods as well as the current period e.g advertisement expenditure.

Accounting Concepts or principles

Accounting concepts are those assumptions, principles or conditions on which the accounting system is based. Principles are set of rules to be followed in accounting. The following are important accounting concepts or principles.

  1. Business Entity Concepts: According to these concepts, a business is treated as separate Entity distinct from its owner. This means that in accounting the business and owner must be treated separately. Thus, when one person invests amount into the business, it will be deemed to the liability of the business. The concept of separate entity is applicable to all form of business.
  2. Going concern concepts: According to this, it is assumed that business will exist for a long time. There is no intention to liquidate the business in the immediate future.
  3. Money measurement concepts: Accounting records only those transactions which are expressed in monetary terms. Transactions which cannot be expressed in money do not find place in the books of accounts.
  4. Cost Concepts: According to this concept, all transactions are recorded in the books of accounts at actual price involved.
  5. Dual aspect Concepts: according to this concept, every transaction has two aspects. These two aspects are receiving aspect and giving aspect. These two aspects have to be recorded. The basis of this principle is that for every debit, there is an equal and corresponding credit.
  6. Realization Concept: According to concept, demands recognition of income as earned only when a sale has been made and the goods have been accepted by the customers or services have been offered and enjoyed by customers rather than just when cash actually changes hands.
  7. Matching Concept: According to this concept, expenses of a business of a particular period is matched with the revenue of that period in order to ascertain net profit or net loss.
  8. Accounting period Concept: According to this assumption, the life of a business is divided in to different periods for preparing financial statements. Generally business concern adopt twelve months period for measuring the income of the concern. This time interval is known as accounting period.
  9. Consistency concept. Transactions and valuation methods are treated the same way from year to year or period to period.
  10. Prudence / conservatism. This concept requires the accountants not to anticipate revenues and profits until realized but should provide for all possible losses. E.g. provision for bad debts
  11. Historical cost concept. This requires transaction to be recorded at the price ruling at the time and for assets to be valued at their original cost.
  12. Accrual concept. This requires the recognition of items at the occurrence of the transaction and not when cash is received or paid. g. accrued income and accrued expenses

SINGLE ENTRY BOOK KEEPING

This is a system of book keeping where the recording of transaction (entries) is done only when cash is received or paid out by the business. This payment may be by cash or cheque.

This system is outdated and common in small businesses especially retail businesses where most transactions are on cash basis and in small amounts. This means that it is unsuitable for large businesses whose transactions are not necessary effected on a cash basis.

Accounts

An account refers to a record of where transactions which are similar in nature are kept. It is a statement in the ledger, which indicates the dealings with a particular person or item.

Business transactions are recorded in an account. It is divided into two equal sides, one side is the debit (DR) and the other is the credit side (CR)

FEATURES OF ACCOUNT

  1. Date column – records the date when the transaction took place.
  2. Details column – records the details of the transactions.
  3. Folio column – records the reference page.
  4. Amount column – records the amount shown in the transaction.
  5. Debit side – records the receiver value.
  6. Credit side – records the giver value.
  7. Heading of the account / tittle of an account.

With the “T” – account format, both the debits and credits are presented on opposite sides of the same page.

The double entry system has accounts categorized as assets (like machinery, motor vehicle, furniture etc), liabilities (like creditors, loan bank overdraft), capital, income and expenses accounts.

Example one

Record the following transactions in Mukene’s cash account and balance off at the end of the month September 2004.

1st commenced business with cash in hand              shs 20,000

5th bought goods for cash                                       shs   8,000

10th sold goods for cash                                          shs   5,000

15th paid salary in cash                                           shs   2,500

22nd paid rent in cash                                             shs      800

25th paid rates in cash                                            shs   2,200

28th cash sales to date                                            shs   2,000

30th cash purchases                                               shs   5,400

Example two

Record the following transactions in Kato’s cash account and thereafter balance it off.

2000                                                                              shs

May

1st started business with cash                                           10,000

3rd Bought goods for cash                                                  3,000

6th cash sales to date                                                         4,500

8th Bought land for cash                                                     4,000

11th paid for office expenses in cash                                   1,800

14th paid for stationary                                                       2,000

18th sold goods for cash                                                     4,800

23rd paid general expenses                                                 2,200

31st cash purchases                                                           1,500

Enter the following transactions in KAWUKI DAVID’S single column cash book that took place in the month of August 2001, balance off the cash book at the end of the month.

August

1st started business with                  1,500,000 as capital

3rd paid for welding machine               650,000

5th bought raw materials of                 550,000

15th paid for rent in cash for                300,000

17th sold goods for cash                      500,000

18th paid for wages in cash                  300,000

30th received cash from Paul               400,000

31st paid for electricity in cash             200,000

DOUBLE-ENTRY BOOK KEEPING

By the end of this chapter you should be able to:

  • Understand the nature and content of double-entry accounts
  • Enter transactions correctly into accounts for a variety of transactions
  • Balance off accounts at the end of the accounting period

Double entry system. This is the system of recording transaction twice as they occur. It is the recording of the double aspect or double affair for every transaction. Every transaction involves two entries in the same set of accounts. Ie a debit entry recording value received while a credit entry recording value given away.

Business transactions are recorded in accounts. The maintenance and recording of transactions within these accounts is known as double-entry bookkeeping. The

‘double-entry’ term is used because each transaction can be seen to have two separate effects on the business.

 What does the account show?

Given the ‘T’ shaped appearance of the accounts they are often referred to as ‘T’ accounts. Each of these accounts will show the following:

 Account name

The name of the account refers to the type of transaction. For example, if the account is dealing with buying or selling machinery, then the account could simply be known as ‘machinery’. This means that each different type of transaction would be recorded in a separate account.

 Debits and credits

The debit side (Dr) and credit side (Cr) refer to the left-hand and right-hand sides of each account. These terms can be used to refer to how entries are made. For example, if we talk of ‘debiting’ an account, all we mean is that we would be placing an entry on the debit side – the left-hand side – of the account.

Account details

The details element of each side of the account will contain the name of the other account which the transaction also affects. As a form of symmetry, each transaction will affect two accounts – hence the term ‘double-entry’ – and the details included in each account will refer to the other account to be affected.

There are some basic principles that must be applied when recording double-entry transactions:

  • Every transaction requires two entries to be made in separate accounts.
  • Every transaction requires one debit entry and one credit entry to be made in each of the two accounts.

Rules for double-entry transactions

It is vital that transactions are recorded correctly. For this we need to establish on which ‘side’ of the account each transaction needs to be recorded – i.e. should we ‘debit’ or ‘credit’ an account? This will depend on the type of account that we are dealing with.

In Chapter 1 we were introduced to the terms asset, liability and capital. To start with we will consider three separate types of account: for assets, liabilities and capital.

The rules for recording the double-entry transactions are as follows:

Double Entry Accounting

Another way of remembering double entry rule

An                                            Asset                              Debit

Elephant                                   Expense                          Debit

Is                                             Income / revenue            Credit

Lumpy                                      Liabilities                         Credit

These rules will make more sense if we see some examples of them in action

Example 2.1

On 1 November, the owner places shs 5,000 of her own money into the bank account of the new business.

Explanation

The asset of bank has increased – so we debit that account.

The capital of the business has increased – so we credit that account.

Notice how the detail of each transaction cross-references the other account to be

affected – providing a useful way of locating the other account that is to be affected by the transaction.

 Example 2.2

On 3 November, machinery is purchased for shs 2,000, payment made by cheque.

Explanation

The asset of machinery has increased – so we debit that account.

The asset of bank has decreased due to the payment made – so we credit that account.

Example 2.3

On 9 November, equipment is purchased on credit from Perkins Ltd for shs 320.

Explanation

The asset of equipment has increased – so we debit that account.

The liability of creditorPerkins Ltd has increased – so we credit that account.

Note: A creditor is someone the business owes money to who is likely to be repaid in the near future..

 Advantages of the double entry system

  • It brings into record both aspects of every transaction, ie every debit must have a corresponding credit.
  • it provides most reliable information from day to day transactions as to amounts owing to and by the trader
  • It facilitates reference to the details of any account if information is needed on any set of transactions.
  • It is easy to check the arithmetical accuracy of entries by a trial balance though it is not a conclusive evidence of accuracy.
  • By preparing of a trading and profit and loss account the trader can easily ascertain the anticipated profits.
  • It helps towards the ascertainment of the financial position of the business by preparing a balance sheet.
  • It prevents fraud by rendering (making) any alternation in accounts more difficult.

General rules for balancing accounts

Although balancing accounts is fairly straightforward, it can initially cause problems.

Most problems can be avoided if the following points are remembered:

  • Balances only exist if there is a difference between the totals on each side of the account.
  • The totals of each side of the account are not the balances.
  • The balancing figure on the account will be the amount needed to ensure the totals of each side are equal.
  • Ensure that the totals of the accounts are written on the same line down.
  • Bring the balance down on to the opposite side of the account from the balancing figure.

Procedures of balancing

  • Find the totals of both the debit and credit sides.
  • Subtract the smaller total from the larger total and find out the difference.
  • The difference, which is the amount of balance, is inserted on the smaller side so that both sides will have the same total. Ie the amount inserted on the small side is referred to as the balance carried forward (down) (balance c/d).
  • The amount in balance is then posted on the opposite side as balance brought forward (down) (b/d) to the next period. E.g if the balance is on the credit side so the balance is debit balance.

Advantages of balancing accounts.

  • it prevents accumulation of unnecessary figures
  • it enables a trial balance to be extracted
  • It shows clearly the condition of an account.

The following hints will help you avoid errors.

  • Always ensure that you make two entries for each double-entry transaction.
  • Always complete one debit entry and one credit entry for each transaction.
  • Memorize the basic rules for asset, liability and capital accounts – use a prompt card until you can memorize these rules.
  • Leave plenty of room when drawing up accounts – for extra entries and also room for balancing off the account.
  • Inventory or stock is accounted for just as any other asset.
  • Each separate expense should be kept in a separate account.
  • Incomes and expenses should be kept in separate accounts and not combined

Example one

Annet started business with cash shs 5,000,000 on 1st may 2012

2nd May purchased goods for cash shs 750,000

3rd May opened a bank account and deposited shs 2,000,000

5th May cash sales paid direct into the bank shs 800,000

10th May paid salaries and wages by cheque shs 200,000

12th May cash sales shs 1,000,000

16th May bought motor van by cheque shs 420,000

20th May withdrew shs 600,000 from the bank

22nd May sold goods on credit to Freddie for shs 520,000

25th May received a bank loan by cheque shs 300,000

28th May received a cheque from Freddie for 450,000

30th May bought a generator by cheque shs 6,000,000

Required:

Complete the principle of double entry and extract a trial balance at the end of the period

 

Accounting process

This is the process which is followed by accountants and book keepers in the processing raw financial data into output information in form of financial statement. The accounting process or cycle is described below.

Stage 1. Occurrence and documentation of business transaction.

Business transaction or deals must be concluded first before anything is documented and recorded. When business transaction occurs, the immediate thing to do is to prepare a business document to show evidence of the transaction. The key documents normally prepared include invoices, payment voucher, receipts, cheques , local purchase orders, delivery notes, goods received notes, bank paying – in – slip etc

Stage 2. Entering transactions to the journals.

Journals are books of original or prime entry; they are the first books to which transactions are entered. Information entered into journals is generated from documents described above. Examples of journals include sales journal, purchases journal, returns journals and the cash book.

Stage 3. Posting of transactions to the ledger.

The information which had been entered into the journals is posted to the ledger. It is therefore true to say that the journal feeds the ledgers. A ledger is a book which contains a collection of accounts.

Stage 4. Preparation of the trial balance.

At the end of a period, normally a month, all accounts are closed or balanced off and the trial balance is extracted. A trial balance is a list of debit and credit balances extracted from the ledger.

Stage 5. End of year adjustments and preparation of financial statement / final accounts.

Financial statement / final accounts are prepared from the trial balance. However, before this is done, the trial balance needs to be adjusted at the end of the year in order to make it up to date. Major adjustments include provision for depreciation , provision for bad debts, adjustment for prepaid expenses and incomes, accrued expenses and incomes etc.

Stage 6. Analysis and interpretation of financial statement.

This is not supposed to the work of accountant but is the domain of the financial analysis strictly speaking the work of accountant stops at the preparation of final accounts or financial statement.

 TRIAL BALANCE

Trial balance is a statement containing the various ledger balances on a particular date.

This statement is prepared to check the correctness of ledger posting and balancing of accounts. If the total of the debit balances is equal to the credit balances. It is implied that posting and balancing of accounts are correct

Features of trial balance

  1. It is prepared on a specific date
  2. It is not a part of double entry and not an account
  3. It is a statement of balance of all accounts or totals of ledger accounts
  4. Total of the debit and credit columns of the trial balance must tally
  5. If the debit and credit columns are equal it is presumed that accounts are arithmetically accurate
  6. Difference in the debit and credit columns indicate that some mistakes have been committed
  7. Tallying of trial balance is not a conclusive proof of accuracy of books of accounts; it serves to prove only the arithmetical accuracy of books

Objectives of trial balance

The following are the objectives of preparing trial; balance

  1. To ascertain the arithmetical accuracy of the ledger accounts
  2. To help in locating errors
  3. To help in the preparation of final accounts

SOURCE DOCUMENTS

These are written documents that provide documentary evidence that  a transaction has taken place or took place. In other words, they are a proof that a given   transaction  took place in a business. They include;

An invoice

This  is a document  sent by the  seller  to the buyer  showing   a description  of goods  sold, it shows  the quantity , quality, unit  price, total  price, discounts  if  any  and the  latest  date  when  settlement of debts  should be  effected.

Delivery note

This is a  document  sent  by the seller  to the buyer, to  verify that goods  or services have  been  delivered  and  the customer   (buyer) has  received them.

Bank statement

This  is  a  document  issued  by the  to a customer  for a  specified  period, showing  the  details  of deposits and   withdraws  made by the  account  holder. It alsoshows interest paid or earned, ledger fees (if any) etc

Credit note 

This  is  a document  sent by the supplier  to the customer  to show that  there  is a reduction  in the  amount that  is  owed , it  normally  happens when  some of the  goods  purchased  are  returned.

Credit  notes  can be” incoming  credit  notes”  which  are  sent by  creditors or “ outgoing   credit notes” which  are sent to  debtors.

Cash receipts

These show   how much cash was received by the business and from whom the cash was got.

Sales receipts

These  show a record  of  sales  made  in a  given  period  of time  for instance a day.

Debit note

This  is  a document  sent    by a seller  to the buyer to  correct  an  undercharge  on  an  original   invoice. It is also called a supplementary invoice. For instance, it  can  be sent  to the  buyer  who failed  to  return  the packing  materials  which  were  not  accounted  for  an  original  invoice.

Purchase order

This is   sent  by the  buyer  to show  a proof  that  commitments have  been  made  to buy  from a  named supplier.

Bank deposit slip

It is a document  that  confirms  that  cash  or  a cheque has  been  deposited  into  the named bank  account.

Payment voucher

It is a document that confirms that  payment  has been  made by the  business. It contains the amount , purpose of payment, and  date  of payment, who  received   and  who  authorized  the payment.

Staff files

This shows details  on  personnel  in  a business, names, when they were  recruited,  their obligations,  qualification  and  how  much  they are  to  be  paid.

 

 

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