Documents Used in Trade

A business document is a form that provides details of a transaction and the
evidence that the transaction has taken place.
IMPORTANCE OF DOCUMENTS IN COMMERCE

Documents are important in commerce because they:
(a) Provide written record of transactions that have occurred
(b) Form the basis for recording entries in the accounting records
Features of documents
1. Although every business document has its own special functions, all documents
must have the following features:
(a) Date of issue (b) nature of transaction
(c) Parties to transaction (d) amount
(e) Terms and conditions of transaction
2. In addition, most business documents may have reference numbers.
Documents of home trade

Letter of enquiry
1. It is sent by the buyer to the seller to find out about goods required - their
availability, their prices and the terms of payment.
2. It informs the seller of the goods required, the quantity, the time and the terms
of delivery.
3. The buyer may write letters of enquiry to several suppliers to request for
quotations so as to compare prices and terms of payment.
Quotation
It is sent by the seller to the buyer to inform the buyer of goods requested, giving
all the relevant information: types of goods, their brands, their respective prices,
the terms of delivery and the terms of payment.
Page 1
Commerce – Students’ Guide
Department of Business and Computing
Catalogue and price list

Sometimes, instead of sending a quotation, the seller may send a catalogue
containing detailed and classified information of the various types of goods offered
for sale. The goods, which are either described or illustrated in the catalogue,
have a catalogue, number each for reference (when placing orders). Prices are
not quoted in the catalogue as they may fluctuate often. Instead, a separate price
list is sent together with the catalogue.
Order
1. It is sent by the buyer to the seller to place an order for goods. It states the
type, brand, quantity and price of the goods (as given in the quotation) as well as
the terms of delivery, the terms of payment and the expected delivery date.
2. Sometimes, the seller may supply the buyers with order forms for filling in the
details of the goods required.
Invoice
1. It is sent by the seller to the buyer to notify the buyer of the amount due on the
goods supplied, stating also the type, quantity, price and terms of payment.
2. It is a bill used for goods sold on credit. (Goods sold for cash need not have
invoices. They are billed with cash receipts instead.)
3. It is used to write up the Sales Journal (in the case of a sales invoice) or the
Purchases Journal (in the case of a purchase invoice).
Advice note
1. It is sent by the seller to the buyer to inform the buyer that the goods have been
despatched.
2. It informs the buyer of the quantity and type of goods (minus its prices), date
and means of despatch.
3. It helps the receiving firm to make arrangements for the receipt and the
stocking of the goods that are due to arrive.
2 Prepared By: Emmanuel George

Documents of trade
Delivery note
1. It is sent by the seller to the buyer to inform the buyer of the goods delivered,
stating the quantity and type of goods delivered and quoting the order number, if
any.
2. It usually arrives together with the goods so that the buyer can check the goods
delivered.
3. A copy is usually handed back to the one who has delivered the goods as proof
of delivery.
Credit note
1. It is not an invoice and to distinguish it from an invoice, it is printed in red.
2. It is made out by the seller to the buyer when:
(a) The goods sold have been overcharged in the invoice
(b) The buyer returns the goods (damaged, of the wrong type or specifications,
etc.)
(c) The buyer returns empty containers for which he has been charged in the
invoice
3. It informs the buyer that his account is credited, decreasing the amount that he
owes.
Statement of account
1. It is sent by the seller to the buyer at the end of every month.
2. It summarizes the monthly transactions between the buyer and the seller.
3. It shows the amount of goods bought, the returns made, the payments, and
cash discounts, if any, all of which can be checked by the buyer with the invoices,
credit and debit notes and the receipts received to date.
4. The balance outstanding is the amount that the buyer owes.
5. It serves as a reminder to the buyer to pay up his debt.
6. It enables the buyer to check his books of account and notify the seller if there
is any error.
Receipt
1. It is a proof of money received, issued by the seller to the buyer when the buyer
makes his payment.
2. When payment is made by cheque, it is not necessary to issue a receipt since
the cheque serves as proof of payment.
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Commerce – Students’ Guide
Department of Business and Computing
DIFFERENCE BETWEEN CASH DISCOUNT AND TRADE DISCOUNT:
CASH DISCOUNT TRADE DISCOUNT

• This is a deduction off the invoice • This is a deduction off the list price
price of goods purchased on of goods purchased.
credit.
• This is given to encourage prompt • This is given to encourage bulk
payment. purchases.
• The rate of cash discount • The rate of trade discount depends
depends on the period of credit on the quantity purchased.
allowed.
• The buyer forfeits the discount if • Buyer is entitled to the discount
he does not pay within the given even if he fails to pay within the
period. given period.
• It is treated as an expense in the • It does not appear in the ledger but
ledger accounts. is recorded in the books of original
entry.
Mark- up
Mark – up is the gross profit as a percentage of cost of goods sold.
Mark-up = Gross profit X 100

Cost of goods sold
4 Prepared By: Emmanuel George

Documents Used in Trade

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Documents Used in Trade

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A business document is a form that provides details of a transaction and the

evidence that the transaction has taken place.

IMPORTANCE OF DOCUMENTS IN COMMERCE

2. In addition, most business documents may have reference numbers.

Documents of home trade

Catalogue and price list

2 Prepared By: Emmanuel George

DIFFERENCE BETWEEN CASH DISCOUNT AND TRADE DISCOUNT:

CASH DISCOUNT TRADE DISCOUNT

Mark-up = Gross profit X 100

4 Prepared By: Emmanuel George

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