Source Documents – JSS1 Business Studies Lesson Note (Third Term)

A source document is a paper or form on which a business transaction is first recorded before it is posted to the books of account.

Behavioural objectives

By the end of the lesson, students should be able to:

1. define a source document;
2. list the common source documents;
3. explain the invoice, receipt, debit note and credit note;
4. state the uses of the cash register, cheque and voucher;
5. explain why a business keeps source documents.

What is a source document?

A source document is a form in which transactions are first recorded before being posted to their respective books.

• Transaction: any buying, selling, payment or receipt of money in a business.
• Books of account: the records where the business later enters its transactions, such as the cash book and ledger.
• Origin: the document is the “source” because every entry in the books starts from it.

Why does a business keep source documents?

A business keeps source documents because they are the proof that a transaction took place.

• Evidence: they prove what was bought, sold or paid.
• Basis for recording: entries in the books are made from them.
• Checking errors: they help to find and correct mistakes in the books.
• Settling disputes: they help buyer and seller to agree on what was supplied and paid for.
• Control: they show who authorised a payment.

What are the types of source documents?

There are seven common source documents: the invoice, receipt, cash register, debit note, credit note, cheque and voucher.

Invoice

An invoice is a document given out by the seller to the buyer whenever the seller sells goods.

• Parties: it shows the name and address of the buyer and the seller.
• Goods: it shows the quantity and price of the goods sold.
• Reference: it refers to the customer’s order number.

Receipt

A receipt is a document issued to the buyer to show that some amount of money has been paid for particular goods.

• Use: it is legal proof of payment.
• Kept by: the buyer keeps it, in case the seller says payment was not made.

Cash register

A cash register is a machine that contains the summary of each sale in a given period.

• Records: the amount of sales and the types of goods.
• Prints: it produces a receipt for the customer.
• Shows: the balance.
• Where found: eateries such as Mr Biggs, supermarkets, big bookshops and similar places.

Debit note

A debit note is issued by the seller to the buyer whenever the buyer has been undercharged.

• Effect: it adds to the amount the buyer owes.
• Example: an invoice shows N8,000 but the goods are worth N10,000, so a debit note for N2,000 is sent.

Credit note

A credit note is issued by the supplier when a buyer returns goods to the supplier.

• Second use: it corrects an error of overcharge.
• Effect: it reduces the amount the buyer owes.
• Colour: it is printed in red.
• Example: a buyer returns damaged goods worth N3,000, so the supplier sends a credit note for N3,000.

Cheque

A cheque is a written order to a bank to pay a specific sum of money to the person whose name appears on the cheque.

• Drawer: the person who writes and signs the cheque.
• Payee: the person named to receive the money.
• Details on it: date, payee’s name, amount in words and figures, and the drawer’s signature.

Voucher

A voucher is a source document used for obtaining authorisation for a payment, whether by cash or by cheque.

• Use: a responsible officer approves the payment before money is paid out.
• Layout: a simple voucher has the columns shown below.

What is the use of each source document?

Each source document has one main use, as the table shows.

What is the difference between a debit note and a credit note?

A debit note increases the amount a buyer owes, while a credit note reduces it.

How do source documents appear in a sale?

Several source documents can appear in one sale, in a fixed order.

1. The buyer places an order with the seller.
2. The seller sends the goods with an invoice.
3. The buyer pays by cash or by cheque.
4. The seller issues a receipt as proof of payment.
5. If goods are returned or prices were wrong, a credit note or debit note is issued.
6. The transactions are then posted to the books from these documents.

Evaluation

1. Define a source document.
2. Write a short note on the invoice and the receipt.
3. State two differences between a debit note and a credit note.
4. Name two places where a cash register is found.
5. What is the use of a voucher?

Assignment

List and explain five source documents.