Source documents
A source document is an original record which contains the detail that
supports or substantiates a transaction that will be (or has been) entered
in an accounting system. In the past, source documents were printed
on paper.
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What is the purpose of source documents in accounting?
The source document is essential to the bookkeeping and accounting process as it provides
evidence that a financial transaction has occurred. During an accounting or tax audit, source
documents back up the accounting journals and general ledger as an indisputable transaction
trail.
Invoice
An invoice, bill or tab is a commercial document issued by a seller to a buyer,
relating to a sale transaction and indicating the products, quantities, and agreed
prices for products or services the seller had provided the buyer. Payment terms
are usually stated on the invoice.
An invoice is a document that lists the products and services a business provides to
a client and establishes an obligation on the part of the client to pay the business for
those products and services..
Invoice
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Date: 1.1.21 INVOICE No.
Seller &Co
Address
To
Buyer and co
address
Items Quantity Rate Amount
A4 size paper 10000 $1 10000
Less: TD 10% 1000
9000
Terms:
5% 10 days
2.5% 20 days
Otherwise none
9000-450 -8450
9000-225 =8725
9000
Explain the transaction dated 1 jan 2021
Calculate the invoice amount after Trade discount 10%
The buyer paid on 9th January
Calculate the amount to be paid to the seller
How much is the discount allowed to the buyer
Terms and condition
If the buyer pays with in 10 days 5% cash discount
20 2.5%
After 20days no cash discount
Explain the entry on 5th April 2021
Terms: Cash discount 5% with in 10 days other2.5% 20 days otherwise none
Calculate the invoice amount
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Write the invoice amount after trade discount of 10%
Functions of invoices
Companies need to deliver invoices in order to demand payments. An invoice is a legally binding
agreement showing both parties' consent to the quoted price and payment conditions. However, there are
other benefits to using invoices.
Maintaining records
The most important benefit of an invoice is the ability to keep a legal record of the sale. This makes it
possible to find out when a good was sold, who bought it, and who sold it.
Payment tracking
An invoice is an invaluable tool for accounting. It helps both the seller and the buyer to keep track of their
payments and amounts owed.
Legal protection
A proper invoice is legal proof of an agreement between the buyer and seller on a set price. It protects the
merchant from fraudulent lawsuits.
Easy tax filing
Recording and maintaining all sale invoices helps the company report its income and ensure that it's paid
the proper amount of taxes.
Business analytics
Analyzing invoices can help businesses gather information from their customers' buying patterns and
identify trends, popular products, peak buying times, and more. This helps to develop effective marketing
strategies.
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Debit note
Harjith and Sons
23, Mahesh Nagar
Ambala, Hariyana
Debit note no………………….. Date 5 th January 2021
JOHN PAINTS
121, B-8, Sector 12, Chandigrah
Return of goods with wrong specification
For John Paints
Authorized signatory
Explain the entry on 5th January
Calculate the total amount to be paid by Harjeeth and sons
Suppose Harjeeth and sons returned some items to Jhon Paints name the document Jhon
Paint send as reply
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Credit note
A credit note is also known as a credit memo, which is short for "credit memorandum." This is a commercial
document that the supplier produces for the customer to notify the customer that a credit is being applied to
the customer for various reasons.
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The reasons normally include the following:
the customer returned the goods or rejected the services for any number of reasons
the goods were damaged in some way, usually during transit
there was a mistake in the price on the original invoice
the customer overpaid the original invoice
1000 1100
On the credit note, the supplier will list the products, quantities and product or service prices that were
agreed-upon by both parties. It will normally reference the original invoice and state the reason for the credit
note.
The credit can be provided to the customer as money, or (as usual) it can be applied to future purchases.
Debit Note
Debit note from a buyer to the seller (when the buyer return goods to the seller)
A debit note or debit memorandum (memo) is a commercial document issued by a buyer to
a seller as a means of formally requesting a credit note.
When goods are returned, the purchaser returning the goods prepares a memo with full
particulars of the return and sends it to the supplier to whom the goods are returned. This
memo is called the Debit Note.
Debit note acts as the Source document to the Purchase returns journal. In other words it
is an evidence for the occurrence of a reduction in expenses
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Debit note
Debit note from a seller to buyer
A debit note is a commercial document used by sellers to notify clients of a future invoice.
A debit note is issued when the amount payable by the buyer to the seller increases. It can be issued for the
following reasons:
- When the seller delivers goods or services that will be paid in the future. In this case, an invoice will be issued in the
future.
- When the buyer returns a product to the seller.
- If a billing error has occurred. In this case, a debit note is issued to correct the error. For example, if a seller issued
an invoice for $90, when it should have issued an invoice for $100, the seller can issue a debit note for $10.
A debit note gives information about a future invoice and can also act as a reminder of outstanding debt with a seller.
The buyer uses debit notes to register a debt increase.
It is to be noted that an invoice and a debit note are separate things, but if the seller wants to adjust any amount of
the invoice previously sent, he may use a debit note
It is to be noted that an invoice and a debit note are separate things, but if the seller wants to adjust any amount of
the invoice previously sent, he may use a debit note
Difference between Debit note and Credit note
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KEY DIFFERENCES BETWEEN CREDIT NOTE AND DEBIT NOTE
Credit note and debit note have become an integral part of today’s business culture as business and corporations
have become large and so have their purchases and so have their sales and purchases. As mentioned above, debit
note and credit note are two sides of same coin, very same yet quite different from each other. Key differences
between debit note and credit note are as below:
Credit note is nothing but an articulated form of sales return and is used to reflect that a credit is made to the buyer’s
account whereas debit note is nothing but a document, which can also be used as an evidence to reflect that a debit
is made to the seller’s account.
Credit note is raised or issued by a seller or a vendor whereas a debit note is issued by a purchaser or customer.
If a seller wants to raise a credit note, he will make the corresponding entry in his accounting books with red ink,
however when a buyer or customers issues a debit note, he will make the entry in his accounting books with blue ink.
Credit note and debit note are issued occasionally. When a credit note is issued, it is issued in return or reply to a
debit note from the customer and it implies that the seller would credit the customer with the amount which was
overcharged or found defective. Debit note, on the other hand, is issued to raise a situation where the vendor has
either overcharged his customer or later has received defective products.
Credit note is indicated with a negative sign whereas debit note is indicated with a positive sign.
A credit note does not only affect the sales return account and can be issued if the customer has been charged
wrong. Similarly, a debit note does not only affect the purchase return account, it can also reduce the purchase
amount for error of overcharging.
A credit note is issued only in the case of the credit sale whereas a debit note is issued only in the case of credit
purchase.
When a credit note is issued, sales return account is debited and customer account is credited whereas when a debit
note is issued, supplier’s account is debited and customer’s account is credited.
Cheque and cheque counterfoil
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A cheque is a written document instructing a bank or building society to debit your account and pay
someone. Cheques can be used to pay money in and out of your account. Typically cheques are used to
pay bills, tradesmen or to pay a someone face-to-face.
A COUNTERFOIL of a cheque is that part of a cheque, which is torn off and kept as a receipt by the drawer of
a cheque to serve a piece of evidence or proof for having made the payment. But now-a-days such practice is
not in vogue. At the beginning of a cheque book provisions are made to record all the cheque payments to
serve as a record or proof of payments made.
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Cash receipt
Cash receipt is recognized when an entity receives cash from any external source, such as a
customer, an investor, or a bank. Typically, this cash is recognized when money is received from a
customer to offset the accounts receivable balance generated when the sale transaction occurred.
What Is a Bank Statement?
A bank statement is a document (also known as an account statement) that is typically sent by the bank to the
account holder every month, summarizing all the transactions of an account during the month. Bank
statements contain bank account information, such as account number and a detailed list of deposits and
withdrawals.
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Statement of Account
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A statement of account, also known as an account statement or customer statement, is a document that
outlines the transactions between a buyer and a seller.
Account statements can serve a few different purposes. By listing every transaction between a business
and a customer, a statement of account can be used to:
Calculate an outstanding account balance
Remind a customer to settle their account balance
Avoid disputes with customers.
Difference between bank statement and statement of account
Bank statement Statement of account
Send by a bank to its customer Send by seller to the buyer
Details of bank transaction between bank and Details of transaction between seller and buyer
customer
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Petty cash voucher
Petty cash voucher is a record of expenditure from a petty cash fund for which a receipt was not received.
Petty cash funds are maintained to provide a company with fast access to small amounts of cash for minor,
non-routine purchases. Petty cash vouchers are used to maintain financial control of petty cash accounts,
preventing abuse or mismanagement of the funds.
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