Documents Used In Trade

A business document is a form that provides details of a transaction and the evidence that the transaction has taken place. IMPORTANCE OF DOCUMENTS IN COMMERCE Documents are important in commerce because they: (a) Provide written record of transactions that have occurred (b) Form the basis for recording entries in the accounting records Features of documents 1. Although every business document has its own special functions, all documents must have the following features: (a)

Date of issue

(b) nature of transaction

(c)

Parties to transaction

(d) amount

(e)

Terms and conditions of transaction

2. In addition, most business documents may have reference numbers. Documents of home trade Letter of enquiry 1. It is sent by the buyer to the seller to find out about goods required - their availability, their prices and the terms of payment. 2. It informs the seller of the goods required, the quantity, the time and the terms of delivery. 3. The buyer may write letters of enquiry to several suppliers to request for quotations so as to compare prices and terms of payment. Quotation It is sent by the seller to the buyer to inform the buyer of goods requested, giving all the relevant information: types of goods, their brands, their respective prices, the terms of delivery and the terms of payment.

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Commerce – Students’ Guide Department of Business and Computing

Catalogue and price list Sometimes, instead of sending a quotation, the seller may send a catalogue containing detailed and classified information of the various types of goods offered for sale. The goods, which are either described or illustrated in the catalogue, have a catalogue, number each for reference (when placing orders). Prices are not quoted in the catalogue as they may fluctuate often. Instead, a separate price list is sent together with the catalogue. Order 1. It is sent by the buyer to the seller to place an order for goods. It states the type, brand, quantity and price of the goods (as given in the quotation) as well as the terms of delivery, the terms of payment and the expected delivery date. 2. Sometimes, the seller may supply the buyers with order forms for filling in the details of the goods required. Invoice 1. It is sent by the seller to the buyer to notify the buyer of the amount due on the goods supplied, stating also the type, quantity, price and terms of payment. 2. It is a bill used for goods sold on credit. (Goods sold for cash need not have invoices. They are billed with cash receipts instead.) 3. It is used to write up the Sales Journal (in the case of a sales invoice) or the Purchases Journal (in the case of a purchase invoice). Advice note 1. It is sent by the seller to the buyer to inform the buyer that the goods have been despatched. 2. It informs the buyer of the quantity and type of goods (minus its prices), date and means of despatch. 3. It helps the receiving firm to make arrangements for the receipt and the stocking of the goods that are due to arrive.

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Prepared By: Emmanuel George

Documents of trade

Delivery note 1. It is sent by the seller to the buyer to inform the buyer of the goods delivered, stating the quantity and type of goods delivered and quoting the order number, if any. 2. It usually arrives together with the goods so that the buyer can check the goods delivered. 3. A copy is usually handed back to the one who has delivered the goods as proof of delivery. Credit note 1. It is not an invoice and to distinguish it from an invoice, it is printed in red. 2. It is made out by the seller to the buyer when: (a) The goods sold have been overcharged in the invoice (b) The buyer returns the goods (damaged, of the wrong type or specifications, etc.) (c) The buyer returns empty containers for which he has been charged in the invoice 3. It informs the buyer that his account is credited, decreasing the amount that he owes. Statement of account 1. It is sent by the seller to the buyer at the end of every month. 2. It summarizes the monthly transactions between the buyer and the seller. 3. It shows the amount of goods bought, the returns made, the payments, and cash discounts, if any, all of which can be checked by the buyer with the invoices, credit and debit notes and the receipts received to date. 4. The balance outstanding is the amount that the buyer owes. 5. It serves as a reminder to the buyer to pay up his debt. 6. It enables the buyer to check his books of account and notify the seller if there is any error. Receipt 1. It is a proof of money received, issued by the seller to the buyer when the buyer makes his payment. 2. When payment is made by cheque, it is not necessary to issue a receipt since the cheque serves as proof of payment. 3

Commerce – Students’ Guide Department of Business and Computing

DIFFERENCE BETWEEN CASH DISCOUNT AND TRADE DISCOUNT: CASH DISCOUNT This is a deduction off the invoice

•

•

price of goods purchased on

TRADE DISCOUNT This is a deduction off the list price of goods purchased.

credit. •

This is given to encourage prompt

•

payment. •

This is given to encourage bulk purchases.

•

The rate of cash discount depends on the period of credit

The rate of trade discount depends on the quantity purchased.

allowed. •

The buyer forfeits the discount if

•

•

Buyer is entitled to the discount

he does not pay within the given

even if he fails to pay within the

period.

given period.

It is treated as an expense in the ledger accounts.

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It does not appear in the ledger but is recorded in the books of original entry.

Mark- up Mark – up is the gross profit as a percentage of cost of goods sold. Mark-up =

Gross profit Cost of goods sold

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Prepared By: Emmanuel George

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