Every business transaction for goods or services involves at least two organizations, one doing business purchasing and other doing the selling. Financial documents are generated for every transaction as proof of the transaction. Some documents are essential because they are used to record information about financial transactions in “books of original entry”, otherwise known as “journals”. Other documents are optional, that is they are not required in every business transaction. Journals do not record the information on optional documents.
Guidelines for completing financial documents
Many documents and books of account are now processed electronically. However, the following guidelines apply to completing financial documents and books of account in a manual system:
- Handwriting must be legible
- Figures must be legible and kept in alignment
- Errors should be ruled out with a pen and the correct figure should be written above
- Correction should be initiated
- You should not use correction fluid or erasers to correct errors
Requirements for financial documents
Documents raised in an organization for financial purposes have specific requirements for accounting, business, records, taxation and legal purposes. Documents are:
- “Accountable forms” and must not be destroyed; an “accountable forms” register is kept for audit purposes; unused forms must be stored in a secure place
- Required to display the name (and other details) of the organization generating the document
- Numbered consecutively; an alphabetical prefix to the number indicates a series
- Required to have an original and a duplicate; some organizations may produce even more copies
- Required to show the date of he transaction
- Required to record the numbers of the documents to which they refer; this provides an “audit trail”
Businesses mostly conduct transactions on a credit basis. This means that goods or services are not paid for at the time of the transaction. A supplier extends credit to a purchaser. The purchaser must complete an “Application for Credit”. This document outlines the terms of trade established by the supplies and agreed to by the purchaser. Financial documents are usually pre-printed. They are designed to conform to the accounting practices and computer systems of the company.
Terms of Trade – Credit limit
When negotiating terms of trade, the supplier will set a credit limit for the purchaser. The decision will be based on the purchaser’s financial situation, credit rating, paid up capital, etc.
Nett 30 days
Most of organizations stipulate Nett 30 days for payment. This means that purchases for a month (say 1-30 June) will appear on the statement prepared by the supplier at the end of June. When the purchaser receives this statement from the supplier early in July, the purchaser has until 31 July to pay the account. If the account is not paid by 31 July, the amount will be “aged” on the statement into the “outstanding 30 days” box.