Key Business Documents

Question 1

What is the purpose of an invoice?

Answer 1

An invoice is sent by the supplier to the buyer when goods are purchased on credit to charge the buyer for the goods. The buyer uses the invoice to record the purchase of the goods in the ledgers .

Question 2

What are the details included in an invoice?

Answer 2

• An invoice number
• Catalogue number and description of goods
• The Invoice total (Net Goods Value

Question 3

What is the purpose of a credit note?

Answer 3

This is sent by the seller to the buyer when the buyer returns goods which they originally purchased on credit. The buyer uses this document to record the purchase return.

Question 4

What are the details included in a credit note?

Answer 4

A credit note number
Catalogue number and description of goods
Quantity and reason for the goods being returned

Question 5

What is the purpose of a statement?

Answer 5

This is sent by the supplier to the customer at the end of an agreed period - usually at the end of the month. It shows all the transactions which have taken place between the supplier and the customer during that month. The final balance shown in the statement represents the amount due by the customer at the end of the month. The customer is a Debtor of the supplier.

Question 6

What are the details included in a statement?

Answer 6

• An opening balance - which is the amount that was owed by the customer to the supplier from the previous month.

Payments made to the business by the Debtor. These are shown as DR entries and deducted from the total amount owed.

The closing balance which represents the amount owed by the customer to the supplier at the end of the month.

Question 7

what is the purpose of an order form?

Answer 7

this is used by the customer to place an order with the supplier when wishing to buy goods

Question 8

what are the details included in an order form

Answer 8

• the customer and suppliers name and address
• the date the order is placed
• an order number
• catalogue number and description of goods
• total cost of the order
• quantity required

Question 9

what is the purpose of a receipt?

Answer 9

given to the customer by the supplier when payment has been made. This is used by the customer to record the details of payment in the ledger - bank/cash CR and purchases DR. This acts as proof of payment

Question 10

what are the details included in a receipt?

Answer 10

• name and address of the seller
• date
• description of the goods
• total amount paid for the goods

Question 11

what is the purpose of trade discount?

Answer 11

trade discount is given to encourage customer loyalty and to encourage customers to buy in bulk

Question 12

what is the purpose of cash discount?

Answer 12

cash discount is given to credit customers to encourage them to pay promptly e.g within one month

Question 13

why is it important to get trade receivables (credit customers) to pay promptly? - two reasons

Answer 13

1. we need money from them to pay for our own bills e.g wages, inventory and electricity
2. trade receivables may turn into bad debts, therefore we want them to pay us as soon as possible

Question 14

what is vat?

Answer 14

this stands for value added tax. it is a tax which is added to the net goods value of goods. this will increase the total price customers have to pay for many of the goods they purchase