It is important that you know the type of documents commonly used to record the occurrence of transactions (Can you think of any examples?). Some of them are:-

• Official receipts

Normally you will get these when you make payment over the counter to the cashier

• Cash bills

You seldom get these nowadays. However, if you made purchase of goods from a shop that has no cash register, normally you will get these as proof of payments.

• Bills

Electricity, water, quit rent & assessment, services. Normally you received these and asked to pay by a specified date.

• Invoices

Normally you receive these when you purchase physical goods. Same function as bills, invoices ask the recipients to pay by a specified date.

• Delivery Orders

You get these when you receive the goods that you have ordered previously. However, delivery order is different from invoice, its function is to record the descriptions and quantity of the goods concern, whereas, invoice will state the unit price and also the terms of payments.

• Purchase Orders

Purchase orders are used to order goods from your suppliers in accordance with your specifications and quantity of the goods.

• Customer Orders

Customer orders are used for the customers to fill up in ordering the goods.

• Credit Notes

Credit notes are issued to customers to inform them that their account has been “credited” for the reasons specified in the credit notes (meaning is there is a reduction in the amount that the customer has to pay because of e.g. overcharging of price, defective goods returned, discounts etc.)

• Debit Notes

Debit notes are issued to customers to inform them that their account has been “debited” for the reasons specified in the debit notes (in contrasts to credit notes, debit notes has the opposite function-the customer is informed that they have to pay more because of e.g. under charging of price, additional charge for miscellaneous services etc.)

• Payment Vouchers

Payment vouchers are used to record payments made by the business entities in chronological orders, normally in respect of cheque payments.

• Petty Cash Vouchers

Petty cash vouchers are used to record payments made by the business entities in chronological orders in respect of cash.

• Goods Received Notes

Goods received notes are used to record receiving of goods purchased. Please take note that the function of Goods Received Notes (GRNs) is different compared to that of the Delivery Orders an entity received from its’ suppliers. Just imagine this – if the entity receives goods from different suppliers, lets say on average of 20 in a day, what would happened if it does not have a systematic way of recording the receiving of goods? HAVOC! However, for many small entities that have minimal purchase transactions, GRNs may not be used as each incident of receiving goods could still be monitored easily. For good control purposes, a receiving logbook is used to record the details of receiving goods (Date, Name of Supplier, Delivery Order Number, Description of goods).

• Stock Cards & Stock Ledger

Stock cards are used to monitor physical movement of stocks. For better control purposes, stock cards are normally kept and recorded by storekeepers, and only quantity of stocks, stock codes and description of stocks are recorded on the stock cards WITHOUT the unit costs indicated. This is because it is not necessary for storekeepers to know the unit costs of stock (in a way to reduce the risk of pilferage of more expensive stock items). Stock cards are updated based on the evidence of stock-in (goods received notes and delivery orders from suppliers if no goods received notes system practised) and stock-out (delivery orders to customers) In addition to stock cards, some business entities also maintain another type of stock record – stock ledger. Stock ledger is updated with all the details of stocks including the stock code, descriptions, quantity and the total value of each type of stock based on supplier invoices received. At every fixed interval e.g. month end, the quantities of stocks reflected in the stock cards could then be checked and reconciled to the quantities of stocks recorded in the stock ledger and any variances to be investigated and followed-up.

Sales Cycle  

In each activity, try to list down the type of documents used based on what you know thus far. Compare to the following:-

• Receive customers’ inquiry

– This can be in many ways, walk-in, telephone, fax, email etc. For internal information record purposes, a separate file to keep track of customers’ inquiry is desirable because any form contact from potential customers should be treated seriously. However, this is not part of the accounting documents because no transactions occurred at this point in time.

• Check availability of stocks

– Obviously, the store keeper will be contacted to make sure sufficient quantity of stocks are available (stock cards) or else exact date of new arrival of stocks should then be checked and communicated to the customers.

• Inquire mode of payment

– No documents are used.

• Check creditworthiness of customer if on credit

– Some form of database of customer maintained by the business entity would be referred to for existing customers. Those with outstanding balances unpaid should be checked as to any outstanding debts exceeding the credit period allowed and also as to the credit limit of the customers. For new customers, details required should be obtained and submitted to the approval of responsible personnel e.g. Sales Manager before accepting orders.

• Check and agree on pricing

– Approved price list. This is also not part of the accounting documents. Cash purchases normally are cheaper compared to those on credit.

• Complete customer orders

– Obviously the customer orders. Based on the customer orders, further arrangement such as packing of stocks, transportation arrangement & etc. will be arranged for the delivery of stocks to the customers.

• Store prepares stocks for delivery

– Initially based on customer orders to prepare stocks. Update stock cards based on actual quantity of stock-out based on delivery orders to customers.

• Generate delivery orders

– Obviously the delivery orders to customers.

• Generate sales invoices

– Obviously the sales invoices to customers.

• Delivery to customers

– The physical stocks together with the delivery orders and the sales invoices to the customers.

Purchases Cycle

In each activity, try to list down the type of documents used based on what you know thus far. Compare to the following:-

• Raise purchase requisition

– Dependent on the nature of the businesses, when stocks level reach re-ordering level, for “back-to-back” orders where no stocks are kept, when receiving customers’order.

• Contact suppliers and obtain quotations

– Dependent on the policy of the business entities concerned, some require minimum three quotations to be obtained from different supplier for comparison.

• Select supplier in accordance with policy set

– Dependent on the policy of the business entities, selection of supplier may not necessary based the lowest price quoted, past dealings that give indication of quality of goods, speed of delivery & etc. should also be considered in selecting supplier.

• Generate purchase orders

– Once the supplier is selected, purchase orders are generated.

• Placing orders with supplier

– Approved purchase order is given to the selected supplier.

• Receiving goods together with delivery orders and invoices

– Checking the correct specification, condition and quantity of good received by matching to the purchase order raised previously.

• Generate goods received notes

– Obviously the goods received notes and also update the stock cards.

• Delivery notes, invoices and goods received notes to Accounts Department for checking and payment

– Delivery notes, supplier invoices and good received notes would be handled over to the Accounts Department for checking and prepare payment. Stock ledger will be updated

Note: Purchase orders are generated in multiple copies – example, the original copy to the supplier, one copy kept by the Purchasing Department, one copy to the Store and one copy to the Accounts Department. Sometimes, the delivery orders and invoices received from the supplier are handed over from the store receiving goods to the Purchasing Department instead of directly to the Accounts Department. The Purchasing Department would perform the checking role on the purchases. Once approved by the Purchasing Department, the Accounts Department would proceed straight to updating stock ledger and payment.

Receiving cash

Dependent on the nature of business, the mode of receiving payment from customers includes cash, cheque, direct deposit to the bank account via wire-transfer & credit card. Can you think of others? The most important control checkpoint in receiving payments from customers is to be able to account for each and every single payment received and ensure that it is deposited into the bank account of the business entity. For this purpose, pre-numbered official receipt is used. For cash collected from customers, it should be counted at the end of the day and be deposited into the bank account of the business entity the soonest possible. A listing of official receipt indicating the total receipts of the day should then be prepared, matched to the bank deposit slips and properly approved. Similarly for other form of receipts, cheques, credit cards, wire transfer & etc. as soon as they are deposited into the bank account of the business entity, checking of the money deposited to the official receipts MUST BE DONE. The most frequent problem that I have encountered in respect of receipts from customers is in the situation whereby customers deposited payment directly into the bank account of the business entity. If no systematic procedures established with regard to this, the result is unidentified receipts appearing in the bank statements and it could result in unnecessary time and effort spent to trace the identity of the payee. Proper deposit form should be distributed to each customer who wish to make payment in this manner and make sure that a copy is completed properly with all the required payment details and forward a copy to the business entity.

Payments

Payments could be made for purchases in the form of cash for small sum and cheques for larger amounts. For cash payments, petty cash vouchers are used and each payment must be supported by the relevant supporting documents such as bills and official receipts. For cheque payments or wire-transfers, payment vouchers are used. All the relevant payment supporting documents such as invoices, bills & etc. must be enclosed together and properly checked and approved.

In addition to the above, can you name the common types of documents that are used by business entities? (different business entities in different industries may have their own special type of documents pertaining to their industries)