1 DOCUMENTS FOR BUSINESS TRANSACTIONS

When a business enters into a transaction, such as a sale or purchase, each stage of the transaction is documented. Some businesses use electronic documents in their computer systems and that electronic information can be sent from the computer of suppliers to customers without the need for a paper trail or record. Nevertheless, depending upon the size and nature of a business, many transaction documents may still be produced in paper form.

Documents for business transactions need to be produced for several reasons:

• It is Evidence of the transaction and its details: For example, suppose that Charu buys some flower pots from Gopi, which Gopi delivers. Charu may complain to Gopi that 250 flower pots had been ordered but only 200 were delivered, and that the agreed price was $1.50 per pot, whereas Gopi was now asking for $1.75 for each pot. If the original order has been documented, the dispute could be resolved by checking the order details.
• It is evidence of the stage that the transaction has reached. Documents are produced at different stages in a transaction. You may have had some experience of this yourself. Suppose that you buy a new set of chairs for your house from a local store. The sales assistant will record the details of your order in the store, and ask you to sign it as evidence that you have placed the order. The document you sign is called a sales order. Some weeks later, the chairs may be delivered to your house by a delivery van, and you will be given a document by the van driver, which you may have to sign as evidence that you have received the chairs. This document is called a delivery note. Sometimes you may receive a letter first containing an advice note which will advise you that the delivery will be made on a specific day and will list the items to be delivered. When you order the chairs, or after they have been delivered, you will be required to pay. The store will confirm the payment to you when the payment occurs, by giving you a receipt. A receipt is a document providing evidence that you have paid.
• Documents enable checks and reviews to take place. In business, it is difficult to keep track of every transaction. Documents can be used to check details and confirm that everything appears to be correct. For example, a business may receive an invoice from a supplier demanding payment for goods delivered by the supplier. Before the business makes the payment, there should be a check that everything is in order, and that the goods were delivered properly (as the supplier has claimed) and that the amount asked for in payment is correct. This checking process is carried out by reviewing at the relevant documents.
• Documents enable transaction details to be captured and for them to be recorded in the accounting system, which is explained in subsequent chapters. Briefly, details of all the sales and purchase transactions entered into by a business are recorded in its 'accounts' or 'books'. To maintain accounting records, a business needs a record of the transaction details. These details come from the documents relating to each transaction.

You need to know: what the main business documents are and what details they contain; why they are needed; who produces and authorises them; and when they are needed.