The source documents are the paper (or electronic) record of all the businesses transactions. These documents are then recorded and summarised as part of the bookkeeping and accounting process.
Examples of source documents are: sales order, purchase order, invoice, credit note, goods received note, bill of lading.
It is vital that a business keeps copies of all its source documents as evidence for audit and/or the taxman. Hopefully, nicely filed!
Not every business produces or needs to produce all the different types of source document. For instance, a service industry is unlikely to have a “delivery note” as there is no physical product to ship.
Some that are less common in small businesses are:
A sales order is raised when an order is received from a customer. It will normally contain information about the goods that have been sold, prices, deliver times and any special requirements or notes. A copy of the sales order will also be sent to the accounts office so that they will be able to raise a sales invoice once the goods have been despatched.
A business traditionally raises a purchase order when it wishes to order goods from a supplier. Details of quantities, prices and possibly delivery times are detailed on the document which is then sent out to the supplier.
A business often numbers it’s purchase orders so that it can be cross-referenced to the goods and invoice when they arrive. A business keeps a copy of the purchase order for itself. If it is a larger business, a copy is sent to accounts and a copy is held by the purchasing department.
Small business and sole traders often don’t bother with purchase orders. If you don’t have purchase orders, that’s fine. They are more critical when more than person orders things on behalf of the business.
Goods Received Note
In a larger business, a goods received note (GRN) is generated whenever a delivery is made to the business. The GRN details what goods and quantities have been received and when. A copy of the GRN is sent to the accounts department to enable them to match it to the purchase order (that would have been raised when the goods were originally ordered from the supplier).
When the invoice is received, this is matched to the purchase order and GRN. Only if the details on all three match up, is the invoice paid.
Smaller businesses don’t bother with goods received notes. As with purchase orders, they become more critical with bigger businesses, where duties are split between different staff.
Delivery Note/Bill of Lading
This document is produced when goods are shipped to the customer. It might list the goods, quantities, weights, how it was shipped and the delivery time. A copy is sent to the accounts department so that they can match it with the sales order and raise a sales invoice for the goods.
A sales invoice relates to the business’s sales order (and the customer’s purchase order). An invoice is raised when a credit sale is made and the goods have been despatched.
A sales invoice is a request for payment but it is also used for other purposes, too. For this reason, several copies of an invoice are used within the business, in addition to the “top copy” that is sent to the customer.
Most invoices are numbered uniquely in order to keep track of them. Information usually shown on an invoice includes:
- name and address of the seller and purchaser
- date of the sale
- description of the goods/services
- quantitiy and unit price of what has been sold
- trade discounts (if any)
- total amount of the invoice
- VAT details
- date that payment is due and any other terms of sale.
If you are VAT registered, then each of your sales invoices must have a unique, sequential number.
A purchase invoice is the invoice that you receive from your supplier for goods that you have purchased. It is your supplier’s sales invoice to you, therefore you would expect to see all of the details usually found on a sales invoice.
A credit note cancels a whole or part of an invoice, either because the invoice itself was incorrect or there was a problem with the goods/services that were being invoiced for.
Credit notes are frequently printed in red to distinguish them from normal invoices.
They normally contain similar information to that contained on the original sales invoice, plus the invoice number to which it relates.
Sometimes, if the customer has already paid, you might decide to refund the credit note. This might be because the customer is unlikely to order from you in the near future or they may have requested a refund.
A debit note might be issued to a supplier as a way of formally requesting a credit note.
Within a business, a debit note might be raised to adjust an invoice that has already been issued as a way of keeping the records straight. This is like a “dummy credit note.” In this instance, the debit note is not sent out.
In practice, these are not used often in the UK in small businesses. This is mainly because, if you need a credit note, you’d normally ring up or email.