IGCSE Accounting Ch 4: Business Documents

Cambridge IGCSE Accounting

Chapter 4: Business Documents

This chapter explains the source documents used to prepare accounting records, including invoices, debit notes, credit notes, statements of account, cheques, receipts, paying-in slips and bank statements.

InvoicesTrade discountCash discountDebit notesCredit notesBank documents

Topic 1: Business documents and invoices

Business documents provide the financial evidence needed before transactions can be recorded.

1. What are Business Documents?

Business documents provide the financial information needed to prepare accounting records.

Important documents include:

Business documents used as source documents in accounting

Invoice

Used for credit sales and credit purchases.

Debit note

Usually sent when goods bought on credit are returned.

Credit note

Confirms that the amount owed has been reduced.

Statement of account

Monthly summary between supplier and credit customer.

Cheque

A written instruction to a bank to make payment.

Receipt

Written proof that money has been received.

Bank statement

Bank's record of transactions in the account.

2. Invoice

An invoice is normally issued when goods are sold on credit.

Seller's copy

The seller keeps a copy. This is the sales invoice.

Buyer's original

The buyer receives the original. This is the purchases invoice.

An invoice normally contains:

seller's name and address
buyer's name and address
date
description and quantity of goods
price
discounts
amount due

Invoice and discounts calculation infographic

Example:
10 chairs at $50 each:
10 × $50 = $500
Less 10% trade discount:
10% × $500 = $50
Invoice total:
$500 − $50 = $450

Topic 2: Trade discount and cash discount

These two discounts look similar but are treated differently in the accounting records.

3. Trade Discount and Cash Discount

These must not be confused.

Trade Discount	Cash Discount
Given for buying in bulk or to regular customers.	Given for paying a debt promptly.
Deducted from the list price.	Deducted when payment is made.
Not recorded separately in the accounting records.	Recorded in the accounting records.

Example – Trade Discount

List price = $2,000

Trade discount = 10%

Discount:

10% × $2,000 = $200

Invoice amount:

$2,000 − $200 = $1,800

Only $1,800 is recorded in the accounts.

Example – Cash Discount

Amount owed = $1,800

2% cash discount for prompt payment:

2% × $1,800 = $36

Customer pays:

$1,800 − $36 = $1,764

Topic 3: Debit notes and credit notes

Debit notes and credit notes are commonly used when goods are returned or an invoice amount needs correcting.

4. Debit Note

A debit note is usually sent by a customer to a supplier when goods bought on credit are returned.

Debit note and credit note process between customer and supplier

Reasons may include:

damaged goods
wrong goods supplied
incorrect quantity
overcharging

It asks the supplier to reduce the amount of the original invoice and issue a credit note.

Example:
Goods returned at list price = $500
Trade discount originally given = 10%
Trade discount:
$500 × 10% = $50Debit note value:
$500 − $50 = $450

Another use: A supplier may also issue a debit note when an earlier invoice was undercharged and needs to be increased.

5. Credit Note

A credit note is issued by a supplier to a customer.

It may be issued when:

the customer returns goods
the customer was overcharged

It confirms that the amount owed by the customer has been reduced.

Example:
Customer owes = $2,000
Goods worth $300 are returned and a credit note is issued.
New amount owed:
$2,000 − $300 = $1,700

Customer returns goods → Debit Note sent to supplier
Supplier accepts return → Credit Note sent to customer

Topic 4: Statement of account

A statement of account summarises transactions that have already been recorded.

6. Statement of Account

A statement of account is usually sent by a supplier to a credit customer each month.

It shows:

opening amount owed
invoices
credit notes
cash discounts
payments
closing amount owed

Its main purposes are to:

remind the customer how much is owed
allow the customer to compare the statement with their own records and identify errors

Example:
Opening amount owed = $1,000
New credit purchases = $600
Goods returned = $100
Payment = $900
Amount still owed:
$1,000 + $600 − $100 − $900 = $600

Important: A statement of account is only a summary of information already recorded. Therefore, no new accounting entry is normally made from the statement of account, unless an error needs correcting.

Topic 5: Cheques, receipts and bank records

Banking documents provide evidence for payments, deposits and bank-account transactions.

7. Cheque

A cheque is a written instruction to a bank to pay a stated amount from a person's or business's bank account.

Cheque paying-in slip receipt and bank statement source documents

A cheque usually shows:

date
name of payee
amount in words
amount in figures
signature

Cheque Counterfoil

When a cheque is written, the counterfoil remains in the cheque book. It provides evidence of the payment and is used as a source document for accounting records.

8. Paying-in Slip

A paying-in slip is completed when money or cheques are deposited into a bank account.

Its counterfoil provides evidence of the amount deposited and can be used as a source document.

9. Receipt

A receipt is written proof that money has been received.

It normally shows:

date
goods or services
amount paid
method of payment

Example:
A business sells goods for $250 cash. The customer pays $250 and receives a receipt showing that payment has been made.

10. Bank Statement

A bank statement is a record prepared by the bank showing transactions in the business's bank account.

It may show:

deposits
withdrawals
cheques
bank transfers
standing orders
bank charges
interest

It begins with an opening balance and shows the balance after the transactions have taken place.

Businesses use bank statements to:

monitor their bank balance
find errors
identify possible fraud
compare the bank's records with their own records

11. Other Banking Terms

Standing order

An instruction to the bank to pay a fixed amount regularly on a stated date.

Example: Paying rent of $1,000 every month automatically.

Bank transfer

Money transferred electronically from one bank account to another.

Topic 6: Source documents quick guide

This summary links each transaction to the main source document used for accounting evidence.

12. Source Documents – Quick Guide

Transaction	Main Source Document
Credit sale/purchase	Invoice
Goods returned	Credit note
Payment by cheque	Cheque counterfoil
Money paid into bank	Paying-in slip counterfoil
Cash payment received	Receipt
Bank transactions	Bank statement

These are specifically identified in the chapter as important sources of accounting information.

Key Terms

Invoice

Document showing details of goods sold on credit.

Debit note

Usually sent by a customer requesting a reduction in an invoice.

Credit note

Sent by a supplier confirming a reduction in the amount owed.

Statement of account

Monthly summary of transactions between supplier and customer.

Receipt

Proof that money has been received.

Cheque

Instruction to a bank to make a payment.

Trade discount

Reduction from list price, usually for bulk purchases.

Cash discount

Discount for prompt payment.

Remember

Credit purchase → Invoice
Customer returns goods → Debit note
Supplier accepts return → Credit note
Bulk purchase → Trade discount
Quick payment → Cash discount
Trade discount is not recorded separately; cash discount is recorded.