If you handle accounting, you must have noted that some documents always crop up in your reports. When accounting, we record financial transactions, analyze them, and make reports.
The importance of accounting to a business cannot be overemphasized more, especially as oversight agencies and tax authorities need these financial statements for various reasons.
Knowing what documents to use is just one part of the bigger picture. Here we compile a list of the most frequently used documents accounting.
1. Cash Memo
Businesses use cash memos as source documents. It is here that we record all sales and purchase transactions. It is one of the most recurrent accounting documents, which a business gives when it makes cash sales or receive in case of a cash purchase.
The cash memo contains details such as the number of sales, price of goods, applicable discount, and sales tax. Transactions in the cash memo go into the book of accounts and the auditor will always look to cross-reference the cash book and the cash vouchers.
An invoice is also called a bill. Business must record all their credit sales or credit purchases in this document. For example, when a firm makes sales on credit, it prepares a sales invoice. It details the transaction in terms of the number of goods sold, the price per item, and the total amount sold. The same applies to purchases.
Invoices usually are written in duplicate, with the main (original) copy given to the buyer while the seller keeps the duplicate.
An invoice becomes a bill when the buyer or purchasing entity receives the original invoice copy.
Businesses use the receipt as proof of payment for goods and services. It is a source document that a seller prepares on account of receiving cash from a second party.
Also prepared in duplicate, the original copy goes to the person giving out cash or paying. The seller keeps the duplicate as a record of the transaction and will show payment details including name, date, the total amount paid, and type of payment (cash/cheque).
4. Pay in Slip
The pay in slip is a proof of transaction document received from a bank for depositing money into a bank account.
The process involves filling up a form at the bank, with details of the depositor, date of transaction and amount deposited.
Pay-in-slip must be signed by the bank clerk with the official bank stamp on the counterfoil. Bookkeepers use the pay in slip counterfoil as a source document for recording the transaction.
The cheque is one of the most used financial accounting documents. The document is used for financial transactions and is payable once presented to a specified banker. The cheque is an unconditional order in which an entity signed signs directing the banker to pay a certain sum of money. The payee is the person whose details appear on the instrument.
Cheques can be “crossed” which means the cheque is payable to the account of the payee only.
6. Debit Note
We use the debit note as an evidence document. The note is sent to an individual or business against which we have the debit. Businesses draw debit notes against entities from which they anticipate recovering certain amounts of money. For example, if you draw a debit note to a supplier, you expect them to return defective or damaged goods.
Businesses also use a debit note in cases where there is an overpayment. You must indicate all the necessary details in a debit note, including the date and amount debited.
7. Credit Note
Businesses use a credit note to show that they have credited a given party as indicated on the document. The document is written, for example, to a purchaser to show that the business has credited that transaction in their books.
You can prepare a credit note in case you make a payment that turns out to be less than it should have been.
Details are like in a debit note. However, easily distinguish between the two by the red ink used to write the credit note.
A voucher is a business document that records what type of transaction is to be recorded in financial books. Vouchers are prepared using source documents and identify transactions as debit and credit.
There are two types of vouchers:
- Cash Voucher
- Non Cash Voucher
Cash vouchers include receipt and cheque payments while non-cash vouchers involve the debit note and credit note.
9. Remittance Advice
We use the Remittance Advice to detail payments sent to a supplier, including whether it’s an invoice or offset credit note. And if the customer is paying with a check, the remittance advice will be sent along with the check. In that regard, remittance advice is different from a payment receipt, since it originates from the customer.
10. Account statement
This is a document sent out by a supplier to a customer listing the transactions on the customer’s account, including all invoices and credit notes issued and all payments received from the client.
When sourcing for goods or services, a business will often seek price quotations from different suppliers. The suppliers will send their quotes, in which they describe their products or services, pricing, and delivery terms.
Once the business checks the quotes and selects the best quote, the suppliers will receive a purchase order, based on their quote. In turn, they will supply the goods or services, and then send a purchase order.
During audits of accounts, auditors and tax agents often ask for supplier quotes, to look for signs of fraud. Quotes as source documents are therefore important to the accounting department.
Order documents are sent by the business to a supplier. They bear the description of the products or services, but may not include prices. That’s because a business may want to order supplies, but may not have the updated price list.
However, they are important because the goods delivered or services provided must match the specified requirements in the order documents. An order document can be as simple as an excel page with a list of items, along with a short description.
13. Goods Received Note
As a business, when you receive goods ordered, you have to document the order when it arrives. You do that using a received note, normally at the warehouse.
The goods received note indicates who delivered the goods, who received them, the superficial condition of the goods, and their quantity. The goods received can be used to track inventory, and therefore streamline accounting work.
14. Material Received Note
For manufacturing businesses that receive materials from suppliers, they use a material received note to keep track of their material inventory received. That note details the name of the supplier, the name of the delivery person, what was received, its quantity, date, and inventory location.
It also includes the name of whoever received the goods into the warehouse, their signature, and date. It may also indicate the condition of the received materials.
15. Goods Dispatch Note
When a supplier makes a delivery, the goods are accompanied by a goods dispatch note. That document details what is being delivered, who delivered it, and who received it. Often the receiver has to sign it, indicating they accepted the goods.
The goods dispatch note can be used to back up invoices, or claims of undelivered goods. In that regard, it helps the accounting department do a follow-up on invoices and debts.
16. Sales Order
When a supplier receives a purchase order from a customer, they will create an internal sales order. The sales order is then sent to the sales team, for the sales team to arrange for delivery of goods.
A copy of the sales order is also sent to the warehouse, to help with inventory management. In that regard, sales orders help the accounting team to coordinate with the sales team.
Important tips for handling accounting documents
After knowing the most important accounting documents, a seller has to understand how to use them to get the best results. Some of these documents act as proof of sales, and therefore, they should be perfect when the controlling agencies come asking for them. Additionally, accounting documents can be changed at any time, and so, a seller should know how to update them with the required details. However, as long as one understands the accounting process and knows how to meet local laws’ requirements, everything will be fine. The following tips can make the handling of these documents easier.
Always keep an electronic copy of accounting documents
After preparing cash memos, receipts, and other documents in accounting, a seller should create an electronic copy too. Nowadays, it is easy to manage electronic copies because they do away with the clumsiness associated with hard copies. For instance, they can be retrieved with ease, and they can be stored more safely.
They will help to clear the office of too many documents that may no longer be useful. However, the most significant advantage of electronic copies is that they act as a backup for the rest of the records. If the hard copy gets lost, it can be retrieved and printed. Therefore, these copies will help to solve disputes in the absence of hard copies too.
Be thorough with financial accounting documents
The documents used in accounting require data from various sources, and it is used for specific purposes. For example, cash memos are filed with data regarding the sold items. Because of that, the seller has to ensure that all details are captured in the documents. It becomes even more important when these documents are used as proof of sales.
In that case, the seller will be in a difficult spot if they do not thoroughly check the details. A look at the accounting document list shows that each one needs to capture data for specific purposes, and it is good to keep it in mind when using them.
Use a variety of business documents in accounting
The diversity of accounting documents is an indication that a seller should not rely on one option. If one knows the importance of source documents in accounting, they would know that using them in different forms can bring lots of benefits.
For example, when working with various types of cash memos, it will be easy to identify the one that captures sales data best when there is a variety. When using a receipt as a source document, you may want to know if there is a type that captures more details than the others.
Also, consider consulting a professional accountant when working with accounting documents.
An expert knows how to identify errors and inconsistencies, and they will help fix them to make financial statements accurate. It is more important when doing it for tax compliance purposes.
In addition to that, accountants know what the authorities look for when they ask for financial information, and so, they will help business owners to avoid fines and other penalties.
Accounting documents play a critical role in the handling of business transactions and the preparation of financial statements like the income statement and balance sheet. They are also needed for compliance and tax records. Businesses are now automating many of the accounting processes, and the software a business chooses could be a great addition to keeping financial records.