understand the use of business documents as sources of information: invoice, credit note, cheque counterfoil, paying-in slip, receipt, bank statement
2.2 Business Documents – Primary Sources of Accounting Information
In the Cambridge IGCSE/A‑Level Accounting syllabus, business documents are the original evidence for every financial transaction. They are the primary source for the whole accounting cycle – from the moment a transaction occurs to the preparation of the trial balance, the final accounts and the bank reconciliation.
Why they matter
Provide the factual basis for entries in the books of prime entry.
Contain the mandatory fields required by the syllabus (date, reference, amounts, parties, VAT where applicable).
Allow the accountant to trace, verify and reconcile every figure that appears in the financial statements.
1 Key Business Documents
Document
Primary purpose
Mandatory information (fields)
Where it is recorded in the accounting cycle
Invoice
Request payment for goods or services supplied on credit.
Invoice number (unique)
Date of issue
Seller’s name, address and VAT registration (if applicable)
Buyer’s name and address
Description of goods/services
Quantity, unit price and net amount
VAT amount (if any) and gross total
Terms of payment (e.g. “30 days”) – may include early‑payment discount
Reference to purchase order (optional)
Source document → Sales journal (or Sales returns journal if a credit note follows)
Posts to Debtors (Sales ledger) and Sales Revenue (and VAT Payable where relevant)
Balances flow to the trial balance, Income Statement and Balance Sheet.
Credit Note
Reduce the amount the buyer owes after an invoice has been issued (e.g. returns, over‑charge, post‑sale discount).
Credit note number
Date
Reference to original invoice number
Reason for credit (e.g. “Returned damaged goods”)
Net amount, VAT adjustment and gross total
Source document → Sales returns journal (or Sales journal as a negative entry)
Adjusts Sales Revenue, VAT Payable and Debtors (seller) or Purchases and Creditors (buyer).
Debit Note
Buyer’s request to reduce the amount payable to the seller – the buyer’s counterpart of a credit note.
Debit note number
Date
Reference to original invoice
Reason (e.g. “Short delivery”)
Net amount, VAT adjustment and gross total
Source document → Purchases returns journal (or Purchases journal as a negative entry)
Reduces Purchases, VAT Recoverable and Creditors (buyer) or Sales Revenue and Debtors (seller).
Statement of Account (Account Statement)
Periodic summary sent by a supplier (or customer) showing all transactions for a set period.
Supplier & customer details
Statement period (e.g. “01 Jan – 31 Mar”)
Opening balance (debit or credit)
List of invoices, credit notes, debit notes and payments with dates and amounts
Closing balance
Used to reconcile the individual debtor/creditor ledger with the supplier’s records.
Any missing items are entered in the appropriate journal (sales, purchases, returns).
Supports the preparation of an accurate trial balance and final accounts.
Cheque (including counter‑foil)
Written order to a bank to pay a specified amount to a named payee.
Cheque number
Date
Payee’s name
Amount in figures and words
Drawer’s bank and account number
Signature of the drawer
Source document → Cash book (bank side)
Records a cash outflow; posted to the relevant expense or asset account and to Bank.
The counter‑foil is retained as evidence for the bank‑reconciliation.
Paying‑in Slip (Deposit Slip)
Record of cash or cheques deposited into the business’s bank account.
Date of deposit
Bank name and branch
Account number
Total cash amount
Total cheques amount
Overall total deposited
Signature of the person making the deposit
Source document → Cash book (bank side)
Increases Bank balance and reduces Cash on Hand (or records a receipt of cash/cheques).
Matched with the bank statement during reconciliation.
Receipt
Written acknowledgement that a payment has been received (cash, cheque or electronic).
Receipt number
Date
Payer’s name (customer or creditor)
Amount received (net and VAT where relevant)
Method of payment (cash, cheque, card, electronic)
Brief description of what the payment is for (e.g., “Invoice #1025”)
Source document → Cash book (cash side) or Cash book (bank side) if deposited.
Reduces the relevant debtor or creditor balance and increases Cash or Bank.
Provides audit evidence for completeness of cash receipts.
Bank Statement
Periodic (usually monthly) summary issued by a bank showing all transactions that have affected the business’s bank account.
Account holder’s name and account number
Statement period (start and end dates)
Opening balance
List of all credits (deposits) and debits (withdrawals, bank charges, interest)
Closing balance
Primary document for the bank reconciliation process.
Confirms that entries recorded in the cash book are correct and complete.
Helps identify unpresented cheques, bank fees, interest or errors that must be recorded.
Electronic equivalents
The syllabus recognises electronic versions of all the above documents (e‑invoices, e‑credit notes, e‑statements, online banking records, etc.). They contain the same mandatory fields and are treated identically for recording, posting and reconciliation.
2 How Business Documents Flow Through the Accounting Cycle
Source documents – invoice, credit/debit note, receipt, cheque, paying‑in slip, bank statement, etc.
Books of prime entry
Sales journal – invoices and sales credit notes.
Sales returns journal – credit notes issued by the seller.
Purchases journal – invoices and purchase debit notes.
Purchases returns journal – debit notes issued by the buyer.
Cash book (two‑column) – receipts, paying‑in slips, cheques (bank side) and cash payments (cash side).
General journal – any non‑regular or adjusting entries (e.g., depreciation, error corrections).
Posting to ledgers
Sales ledger (Debtors) and Purchases ledger (Creditors).
General ledger accounts – Revenue, Expenses, Bank, Cash, VAT Payable/Recoverable, etc.
Trial balance – totals of all ledger balances to check that debits equal credits.
Financial statements – Income Statement (Profit & Loss) and Balance Sheet.
Bank reconciliation – uses the bank statement, paying‑in slips, cheques and the cash‑book bank side to ensure the recorded bank balance is correct.
Suggested diagram (flowchart): “From Transaction to Financial Statements” – source documents → books of prime entry → ledgers → trial balance → final accounts, with a side‑arrow from cash‑book & bank statement to “Bank Reconciliation”.
3 Summary Table – Quick Reference
Document
Primary purpose
Key fields
Where it is recorded
Invoice
Request payment for goods/services supplied on credit.
Number, date, seller & buyer details, description, quantities, unit price, net total, VAT, gross total, terms.
Cash book (bank side) → Increases Bank, decreases Cash on Hand.
Receipt
Acknowledge that a payment has been received.
Receipt number, date, payer, amount, payment method, description of transaction.
Cash book (cash side) or (bank side) → Reduces Debtors/Creditors, increases Cash/Bank.
Bank Statement
Summarise all activity in a business’s bank account.
Account holder, account number, period, opening balance, list of credits & debits, closing balance.
Used in bank reconciliation; any differences are adjusted in the cash book.
4 Practice Tasks (AO2 & AO3)
Analysis Task (AO2)
Below are extracts from a transaction cycle. Record the required journal entries in the seller’s books and show the effect on the relevant accounts.
Invoice # 2001 issued on 12 Mar for £1 200 (net) + £240 VAT, terms 30 days.
On 20 Mar the buyer returns goods worth £300 (net) + £60 VAT; the seller issues a Credit Note.
On 25 Mar the buyer pays the remaining amount by Cheque No. 045, £1 140 (net) + £228 VAT.
Required:
Post each transaction to the appropriate journal (sales journal, sales returns journal, cash book – bank side).
Show the impact on Sales Revenue, VAT Payable, Debtors and Bank.
Calculate the net change in profit after the return and the payment.
Solution outline
Date
Journal / Account
Debit (£)
Credit (£)
12 Mar
Sales journal – Invoice #2001
Debtors – £1 440
Sales Revenue – £1 200 VAT Payable – £240
20 Mar
Sales returns journal – Credit Note
Sales Revenue – £300 VAT Payable – £60
Debtors – £360
25 Mar
Cash book (bank side) – Cheque 045
Bank – £1 368
Debtors – £1 368
Account balances after all entries
Sales Revenue: £1 200 – £300 = £900
VAT Payable: £240 – £60 = £180
Debtors: £1 440 – £360 – £1 368 = –£288 (i.e., a credit balance of £288, representing the over‑payment which will be recorded as a Bank overdraft or Refund payable).
Bank: +£1 368
Net effect on profit
Original sale profit (before returns) = £1 200 (assuming no cost of goods shown).
Return reduces profit by £300.
Payment does not affect profit – it only moves the amount from Debtors to Bank.
Net profit after the three events = £900.
Evaluation Prompt (AO3)
Discuss the advantages and disadvantages for a small business of using electronic bank statements** instead of paper statements. In your answer, consider:
Speed and accuracy of information
Security and data protection
Impact on the bank‑reconciliation process
Cost implications and accessibility for staff
Provide at least two points for each side (advantages and disadvantages) and conclude with a judgement about when electronic statements are most appropriate.
5 Key Checklist for Exam Candidates
Know the mandatory fields for each document – they are often asked directly.
Be able to state the exact journal(s) a document is posted to (sales journal, purchases returns journal, cash book, etc.).
Remember that credit notes and debit notes are recorded as negative entries in the relevant returns journal.
Link every document to the next step in the accounting cycle – source → journal → ledger → trial balance.
For bank reconciliation, always mention: bank statement, paying‑in slips, cheques (counter‑foil) and cash‑book bank side.
When answering AO3, give balanced arguments and finish with a clear, justified conclusion.