Which document proves each transaction, and what does it tell us to record?
Identify common source documents and state which book of prime entry each one is recorded in
A simple answer to the N(A)-Level Principles of Accounts outcome on source documents. The invoice, credit note, receipt, cheque counterfoil and others, what each one proves, and the book of prime entry it leads to.
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What this dot point is asking
SEAB wants you to recognise the common source documents and to say which book of prime entry each one feeds. Source documents are the proof behind every entry, and in Paper 1 you are often shown one and asked what to do with it. The central insight is that each kind of document triggers a specific first record, and the amount you use is the figure on the document after any trade discount.
The answer
What a source document is
A source document is the paper (or electronic) record that proves a transaction happened: an invoice, a receipt, a cheque counterfoil. Accounting always starts from a document, never from memory, which is why an examiner can hand you one and expect a correct entry.
The main documents and where they go
| Source document | What it proves | Book of prime entry |
|---|---|---|
| Sales invoice | A credit sale | Sales journal |
| Purchase invoice | A credit purchase | Purchases journal |
| Credit note (issued) | A customer returned goods | Returns inwards journal |
| Credit note (received) | We returned goods to a supplier | Returns outwards journal |
| Receipt | Cash or cheque received | Cash book |
| Cheque counterfoil | A payment made by cheque | Cash book |
Trade discount
An invoice may show a trade discount, a reduction off the list price for buying in bulk or as a trade customer. Trade discount is deducted before recording: you record the net amount and never show the discount in the ledger. This is different from cash (settlement) discount, which is for prompt payment and is recorded.
Examples in context
Example 1. A bulk order with trade discount. A retailer orders \5,00020%\ net, and only \4,000$ enters the purchases journal. The discount rewards the size of the order but is never recorded, which is why two businesses paying different list prices can show the same purchase figure.
Example 2. A return after delivery. A customer finds some goods damaged and returns \150\, which is recorded in the returns inwards journal and reduces the amount the customer owes. The credit note is the document that proves the return, showing how every adjustment, not just every sale, starts with a source document.
Try this
Q1. State the source document for goods bought on credit. [1 mark]
- Cue. A purchase invoice, received from the supplier.
Q2. An invoice shows \60025%$ trade discount. State the amount recorded. [2 marks]
- Cue. Discount = 25\% \times 600 = \150= 600 - 150 = \.
Q3. Explain the difference between a credit note issued and a credit note received. [2 marks]
- Cue. A credit note issued records goods a customer returned to us (returns inwards); a credit note received records goods we returned to a supplier (returns outwards).
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original5 marksState the source document used for each: (a) goods sold on credit; (b) goods returned by a customer; (c) cash received and a receipt issued; (d) payment made by cheque; (e) goods bought on credit.Show worked answer →
(a) Goods sold on credit: a sales invoice (sent to the customer).
(b) Goods returned by a customer: a credit note (issued to the customer).
(c) Cash received: a receipt.
(d) Payment by cheque: the cheque counterfoil (the stub kept in the chequebook).
(e) Goods bought on credit: a purchase invoice (received from the supplier).
What markers reward: the correct document for each event, especially distinguishing the invoice (credit sale or purchase) from the credit note (a return) and the receipt or cheque counterfoil (cash and bank movements).
Original4 marksAn invoice shows goods \1\,00010\%$. (a) State the amount that will be recorded. (b) State which book of prime entry it goes in if the goods were bought on credit.Show worked answer →
(a) Trade discount of on \1,000\, so the amount recorded is 1\,000 - 100 = \900$. Trade discount is deducted before recording and never appears in the ledger.
(b) Because the goods were bought on credit, the invoice is recorded in the purchases journal (purchases day book).
What markers reward: correctly deducting trade discount to get \900$, stating that trade discount is not recorded separately, and naming the purchases journal as the book of prime entry.
Related dot points
- Write up the sales, purchases and returns journals and the general journal, and total them
A simple answer to the N(A)-Level Principles of Accounts outcome on the journals. What the sales, purchases and returns journals and the general journal are for, how to write them up, and how their totals are used.
- Write up a two-column cash book recording cash and bank receipts and payments, with discount columns
A simple answer to the N(A)-Level Principles of Accounts outcome on the cash book. How the two-column cash book records cash and bank together, how receipts and payments are entered, and how the discount columns work.
- Post from the books of prime entry to the sales, purchases and general ledgers
A simple answer to the N(A)-Level Principles of Accounts outcome on posting to the ledgers. The three ledgers, how journal totals and individual entries are posted, and why the ledger is divided this way.
- State and apply the rules of debit and credit for each of the five elements
A simple answer to the N(A)-Level Principles of Accounts outcome on debit and credit rules. What debit and credit mean, the rule for each of the five elements, and the DEAD CLIC memory aid for recording increases.