Business Documents

Question 1

Documents for a credit transaction. Illustrate the flow of documents.

Question 2

Who prepares the purchase order and who is it sent to?

Answer 2

prepared by the buyer, and sent to the seller

Question 3

What details are normally found on a purchase order?

Answer 3

-reference number of purchase order
-name and address of buyer
-name and address of seller
-full description of the goods, reference numbers, quantity required and unit price
-date of issue
-signature of person authorised to issue order

Question 4

In order to keep control over purchases, many businesses do what and why?

Answer 4

authorise certain people as buyers. In this way, purchases are controlled so that duplicate or unauthorised goods are not ordered.

Question 5

What is a delivery note?

Answer 5

It accompanies the goods and gives details of what is being delivered. The delivery note, signed by the buyer is proof of delivery - a copy is retained by the carrier.

Question 6

When is the delivery note prepared?

Answer 6

when the business that is selling the good despatches them

Question 7

What check can the buyer do?

Answer 7

ensure that the correct goods have been delivered

Question 8

True or False. The invoice is the most important document in a business transaction.

Answer 8

True

Question 9

Who prepares the invoice and who is it sent to?

Answer 9

prepared by the seller (sales invoice) and is sent to the buyer (purchases invoice) who uses it as a source document for bookkeeping transactions.

Question 10

What information is found on an invoice?

Answer 10

-invoice number (serially numbered)
-name and address of the seller
-name and address of the buyer
-date of sale
-date that goods are supplied, including reference numbers, quantity supplied and unit price
-details of trade discount allowed (if any)
-total amount of money due
-terms of trade

Question 11

What is VAT?

Answer 11

value added tax

Question 12

Where the seller is registered for VAT, tax must be charged at what rate?

Answer 12

Tax must be charged at the appropriate rate on all sales subject to VAT.

Question 13

What are the terms of trade?

Answer 13

are started on the invoice to indicate the date by which the invoice amount is to be paid.

Question 14

What does the term ‘net’ on an invoice mean?

Answer 14

That the invoice total is the amount to be paid.

Question 15

What does ‘net 30 days’ mean?

Answer 15

That the amount is payable within 30 days of the invoice date.

Question 16

What is trade discount?

Answer 16

The amount sometimes allowed as a reduction in price.

Question 17

Trade discount is to who?

Answer 17

To businesses, often in the same trade (but not normally to the general public)

Question 18

Why is trade discount normally given?

Answer 18

For buying in bulk i.e large quantities (this discount is also known as bulk discount)

Question 19

Trade discount is by who?

Answer 19

Wholesalers as a discount to retailers off list prices.

Question 20

What is cash discount?

Answer 20

An allowance off the invoice amount for prompt payment

Question 21

What is cash discount also known as?

Answer 21

Settlement discount

Question 22

When cash discount is applied, where is it indicated?

Answer 22

On the invoice
E.g. 2% cash discount for settlement within 7 days

Question 23

The buyer can choose to take up cash discount by paying promptly or?

Answer 23

Take longer to pay, perhaps 30 days from the invoice date, without cash discount

Question 24

Compare the amounts to be paid in the following example, where the terms of trade are 2% cash discount for full settlement within 7 days, otherwise net 30 days

Question 25

How can invoices be layed out?

Answer 25

Handwritten or typed on printed forms or input and printed out on a computer.

Question 26

Invoicing is an ideal function for computerized accounting. What is available for invoice purposes?

Answer 26

Pre-printed invoices are available, either in the form of continuous stationery or as separate sheets

Question 27

Increasingly nowadays, how can invoices be sent?

Answer 27

Sent electronically as part of the paperless EDI (electronic data interchange) system which integrates the ordering, invoicing, and payment processes

Question 28

Invoice

Question 29

What is a credit note?

Answer 29

The source document for recording returned goods in the bookkeeping system

Question 30

When does the seller prepare a credit note?

Answer 30

If a buyer returns goods for some reason (e.g. faulty goods supplied) , or requires a reduction in the amount owed (the buyer may have been overcharged) the seller prepares the credit note.

Question 31

Why does the seller prepare a credit note?

Answer 31

To record the amount of the allowance made to the buyer

Question 32

When does the seller issue a statement of account?

Answer 32

At regular intervals, often at the end of each month to each trade receivable

Question 33

Statement of account gives a summary of what?

Answer 33

The transactions that have taken place since the previous statement and shows how much is currently owed.

Question 34

The details on a statement are:

Answer 34

Name and address of the seller
Name and address of the trade receivable (buyer)
Date of the statement
Details of transactions eg invoices, debit notes, credit notes, payments
Balance currently due

Question 35

Most statements have 3 money columns: what are they?

Answer 35

Debit, credit, balance (like a bank statement)

Question 36

What is the debit column used for?

Answer 36

used to record the money amount of invoices and debit notes sent to the trade receivable

Question 37

What is the credit column used for?

Answer 37

it is for payments received and credit notes issued

Question 38

What is the balance column for?

Answer 38

shows the amount due, and is prepared on the ‘running balance’ basis, a new balance is shown after each transaction.
The balance is usually a debit balance, which indicates that the buyer is a trade receivable in the seller’s accounting records

Question 39

some statements of accounts also incorporate what?

Answer 39

a remittance advise as a tear-off slip; this is returned to the seller together with the payment.

Question 40

illustrate a credit note

Question 41

illustrate a statement of account

Question 42

Before payment is made to the seller, the buyer must check what?

Answer 42

that the goods have been received and are as ordered

Question 43

Payment can be authorised by who and how can payment be made?

Answer 43

made by an appointed employee and made by the means of either a cheque (sent by post) or by bank transfer which passes the money from the buyer’s account to the seller’s account

Question 44

What 2 ways can bank transfers be made?

Answer 44

by Bacs (Bacs payment schemes) transfer or by direct transfer between bank accounts using Internet banking

Question 45

If a cheque is posted to the seller, what is sent with it?

Answer 45

remittance advise

Question 46

What is a remittance advise?

Answer 46

shows the amount of the payment, and the transactions which it relates

Question 47

If a payment is sent by bank transfer, a separate remittance advice will be?

Answer 47

mailed or emailed

Question 48

Cash receipts

Question 49

paying-in slip

Question 50

Most businesses have a bank account into which they pay money using a ———–, and make payments by ———– and ———-.

Answer 50

paying-in slip, bank transfers, cheque

Question 51

The paying-in slip counterfoils and cheque counterfoils form what?

Answer 51

source documents for the accounting system

Question 52

At regular intervals a bank issues a statement of account to its customers - the statement, which is a source document may show other………

Answer 52

receipts and payments, standing orders, direct debits, credit transfers, dishonoured cheques, debit card transactions, debit bank transfers and bank charges

Question 53

Who issues a paying-in book?

Answer 53

Paying-in book is issued by the bank to business customers

Question 54

What is the counterfoil in a paying-in book?

Answer 54

is the part that is retained by the customer and stamped as a receipt by the bank cashier for the amount being paid in.

Question 55

What is the counterfoil in a cheque book?

Answer 55

is the part retained by the payer when the cheque is sent off to the payee (the person who is being paid)

Question 56

The counterfoil in a cheque book gives what information?

Answer 56

date of the cheque
the payee
amount being paid
cheque number printed along the bottom

Question 57

illustrate a cheque