1. Unit 1 Financial Accounting Chapter 2 of Textbook
Source Documents
Unit 1 Financial Accounting
Chapter 2 of Textbook
Mr. Barry
A-level Accounting Year 12

2. A-level Accounting Year 12
STARTER ACTIVITY
Write down on post-its all the items that a school might want to buy & who they might get these from?
Also write how the school will pay for these items
In Business transactions can be CREDIT transactions or CASH transactions
Mr. Barry
A-level Accounting Year 12

3. A-level Accounting Year 12
Learning Outcomes
TO UNDERSTAND:
The nature and purpose of source documents
The stages in a business transaction
Which documents are used in a business transaction
Mr. Barry
A-level Accounting Year 12

4. A-level Accounting Year 12
Source Documents
The financial process ALWAYS starts with a source document.
The document is used to provide FIRST ENTRY (the prime entry) in the financial records. Provide evidence that a transaction has taken place.
It is vital that you can describe the details shown on each source document and the purpose for its issue.
You should be able to write up the appropriate subsidiary book for each type of source document.
Mr. Barry
A-level Accounting Year 12

5. A-level Accounting Year 12
Source Documents
Help to ensure that the right goods (type and quantity) are sent to the right place, at the right time.
They provide a means of checking (good management and stewardship) that deliveries of goods match those that have been ordered
They can be used to clarify misunderstandings.
Most large businesses are required to have an AUDIT of their accounts. This WILL involve checking source documents against transactions. They need to be kept for 6 years (part of UK contract law)
Mr. Barry
A-level Accounting Year 12

6. A-level Accounting Year 12
Source Documents
When a transaction takes place between two businesses there is one document that starts the process and allows us to put something into the books of original entry (day books)
This is the source document.
Mr. Barry
A-level Accounting Year 12

7. AQA Accounting ACCN 1 - Syllabus
Source documents include: Invoices, credit notes, cheque counterfoils, paying-in slip counterfoils, cash receipts, till rolls, information from bank statements such as standing orders, direct debits, BACS, credit transfers, bank charges
Mr. Barry
A-level Accounting Year 12

8. A-level Accounting Year 12
Source Documents
purchase order delivery note goods received note Invoice credit note statement of account remittance advice and cheque
Mr. Barry
A-level Accounting Year 12

9. Source Documents – an overview
Purchase Order form – a document requesting the supply of specified goods or services to be sent.
Delivery note – a document that describes the goods or services that have been delivered by the supplier to the buyer.
Goods received note – normally a copy of a delivery note that has been signed to confirm that the correct goods have been delivered.
Invoice – a document that tells the buyer how much is owed for goods that have been purchased.
Credit Note – a document used to confirm that the customer has been overcharged, stating the allowance due to the customer and the reason for overcharging.
Statement of Account – a document sent to a customer showing a summary of recent transaction and the total amount owing
Cheque or Bank Transfer (BACS) - payment methods
Mr. Barry
A-level Accounting Year 12

10. Other Source Documents
Cash Receipts – issued when payment is received. Could be in the form of a till roll or maybe hand written.
Banking Documents – Paying in Slips – When cash or cheques are paid into the bank, the details are recorded on a paying in slip counterfoil. Also Cheque Counterfoils are records kept by the payee (the cheque stub).
Information from Bank Statements – payments and receipts may be debited or credited directly through the bank account.
Direct Debits
Standing Orders
Bank Interest and Charges
Credit Transfers (BACS)
Petty Cash – payments made in cash (small amounts), a petty voucher should be written out with the date, amount, what was purchased / paid for. Should be signed and a receipt attached
Mr. Barry
A-level Accounting Year 12

11. A-level Accounting Year 12
Transaction
Source Document
Purchase of inventory on credit
Purchase Invoice
Sale of goods on credit
Sales invoice
The return of purchased inventory to your supplier which were originally bought on credit
(Purchases) Credit Note (you can’t get cash back if you haven’t paid for it!)
The return of sold items to you from your customer which were originally bought on credit
(Sales) Credit Note
The payment for petrol by cash
Receipt
Money paid into the business bank account
Bank Paying in Slip
Cheque sent to pay a supplier
Cheque Counterfoil (the stub left in the book)
Direct Debit or Standing Order  payment for Utility bill
Bank Statement
Credit Transfer received from a credit customer
Mr. Barry
A-level Accounting Year 12

12. A-level Accounting Year 12
Invoices
The seller of goods or services provide an invoice for the buyer
This invoice will detail the following:
Addresses
Dates
Reference
Description of the goods or services supplied
Value (Amount)
Terms e.g. when is it due? Any discount?
Mr. Barry
A-level Accounting Year 12

13. A-level Accounting Year 12
Purchase Order form
Prepared by the buyer, sent to the seller. Details include:
Ref number
Name and address of buyer
Name and address of seller
Full description of goods, ref numbers, quantity req’d and unit price
Date of issue
Signiture or person authorised to issue the order
Mr. Barry
A-level Accounting Year 12

14. Delivery Notes and Goods Received Note
Prepared by the seller and is sent with the order to the buyer. Sometimes called a dispatch note. Details include:
Name and address of buyer and seller. Invoice address
Order reference number
Dispatch Number, date, account number, quantity ordered
Goods Received Notes
A copy of the delivery note is returned to the seller to act as proof of delivery.
Therefore will include all the details as listed above.
Mr. Barry
A-level Accounting Year 12

15. A-level Accounting Year 12
Credit Note
Sent from the supplier to the buyer (customer) when an adjustment to the amount owed is required.
Possibly due to:
Calculation error
Incorrect delivery
Damage to goods
Returned goods
Goods lost in transit
The details included on a credit note are exactly the same as an invoice.
The credit informs the buyer how much has been deducted from the amount owed to the supplier
Mr. Barry
A-level Accounting Year 12

16. A-level Accounting Year 12
Statement of account
A document sent to the customer detailing all recent transactions including invoice amounts and any payments and refunds that have been made and informing them of the total outstanding. Includes:
Names and addresses of the buyer and seller / Account number
Date of statement
Details (Dates) of transactions e.g. invoices, debit notes, credit notes, payments
Balance outstanding
Normally split into 3 columns – debit, credit, ‘running’ balance
Mr. Barry
A-level Accounting Year 12

17. A-level Accounting Year 12
Cash Receipts
Payment made by the buyer, the seller will issue a cash / payment receipt e.g. till roll print out.
Includes:
Name / address / Date and time of transaction
A list of goods purchased and price paid
A total figure / deductions for discounts
Amount received, any change issued
Can be hand written
Mr. Barry
A-level Accounting Year 12

18. A-level Accounting Year 12
Banking Documents
Paying In Slip – contains details on funds paid into the bank, details include:
Date of the paying in
The name of the person who paid the payee the cheque (on back of slip)
Specific details of cash amount paid in
The total amount of cash and cheques
The counter foil is the ‘tear off’ section of the slip (left hand side). This is stamped by the bank teller and retained by the payee as a receipt.
Cheque Counterfoil – contains details of the cheques being drawn (paid out). Includes:
Date of cheque
The payee (the person / org that is being paid)
The amount of the cheque
Cheque Number (normally printed onto the counterfoil / ‘stub’)
Mr. Barry
A-level Accounting Year 12

19. A-level Accounting Year 12
Bank Statement
Payments may be debited and credited directly through the bank account. Source Document for:
Direct debit – where authority is granted by the business to a third party (for example a supplier) for fixed or variable payments to be made at the request of the third party
Standing orders – where payment is fixed is made at regular intervals by the bank on the instruction of the business.
Bank interest and charges – where the bank processes its charges for ‘maintenance’ of the bank account or the funds invested or borrowed
Credit transfers – where money has been put into the bank account of the business by a third party, BACS (Bankers Automated Clearing System) is used as an automatic method.
Mr. Barry
A-level Accounting Year 12

20. A-level Accounting Year 12
Plenary Questions
State 4 reasons for using source documents.
State 4 pieces of information that you would expect to find on a source document
Complete the following:
Transaction
Source Document
Direct Debit payment for rent
Cash Paid into the bank
Goods purchased on credit from a supplier
Credit for goods returned from a customer
Cheque paid to a supplier
Credit transfer receipt from a customer
Cash payment to the window cleaner
Goods sold to a customer on credit
Mr. Barry
A-level Accounting Year 12

21. Recording Cash Discounts (Double Entry)
Discount Allowed – to debtors (people who OWE the business money) Cash Discount is taken by the debtor as an incentive to pay earlier than credit terms agreed (increases cash inflow). A % is deducted from the total invoice amount. For a brief overview of how this is accounted for through the double entry system (to be re-visited)
Mr. Barry
A-level Accounting Year 12

22. Recording Cash Discounts (Double Entry)
Discount Received – this is when the business receives a discount for early payment to their creditor(s) e.g. a supplier that the business OWES money to for purchases made but not paid for yet. Make notes on the example and notes given including the revision summary.
Mr. Barry
A-level Accounting Year 12