Documents Used in Home Trade 3

Causes of undercharge include:

  • Price undercharges on items
  • Arithmetic errors/mistaken in calculation
  • Omission of items in the invoice
  • Retention of crates and containers that were not involved by the buyer
  • Deductions of more discount than what was give/intended

    Circumstances under which a debit note will be sent to the buyer

    a) When there is an undercharge in the invoice

    b) If the buyer had been given a discount that was not due to him

    c) If some items had been omitted in the original invoice

    d) If the buyer decides to retain some empty containers or crates

    Differences Between a debit note and a credit note

    Debit Note

    1) Issued to correct an undercharge
    on the invoice.

    2) Written on blue or black.

    3) Issued when containers have not
    been returned

    Credit Note

    1) Issued to correct an overcharge
    on the invoice

    2)Usually written in red

    3) Issued when containers have
    been returned.

    Documents used at the payment stage

    This is the final stage of a credit business transaction.

    It takes place after the invoice has been received and ascertained to be correct or where necessary,corrections made.

    The documents used at the payment stage include;

    i) Receipt

    This is a document issued to the buyer by the seller as proof that payment has been made.
    - Payment can be done in cash, cheque, other forms of money or in kind

    - The receipt also serves as a source document for making entries in books of accounts.

    Contents of the receipt include;

  • Date of payment
  • Name of the person making payment
  • Name of person/institution receiving payment
  • Amount paid in words and figures
  • Means of payment
  • Receipt number
  • Signature of person issuing the receipt.

    The issuance of a receipt by the seller to the buyer after receiving payment marks the end of the credit transaction between the seller and the buyer(where payment has been done in full)
    - A receipt serves the same purpose as the cash sale slip serves the same purpose as the cash sale slip

    ii) Statement of Account

    This is a document prepared by the seller and sent to the buyer, giving a summary of all the dealings/transactions between them during a particular period of time, usually a month.

    It has the following details;

  • Date when it was prepared
  • Name and address of the seller
  • Name and address of the buyer
  • Account number
  • Date column-where the date of each transaction is recorded
  • Particulars (Details)column-where the explanation of each transaction is shown
  • Money column
    -Debit column-increases in the amounts payable due to credit sales or under charge correction.

    -Credit column-Decrease in the amounts payable due to overcharges corrected or payments recorded.

    -Balance column-Amount owing after each transaction (Balance outstanding)

    • Any discounts allowed to the buyer

    • Date when the buyer is expected to clear the balance

    • Terms of credit e.t.c.

    -The statement of account enables the buyer to ascertain the correctness of the transactions which have taken place with the seller over the stated period

    iii) IOU

    An IOU (I owe you) is a document written by the buyer and sent to the seller to acknowledge a debt.

    -It does not specify date when settlement will be made.
    -It acts as evidence that a debt exists.

    Summary of documents used in home trade

    Document sent by buyer

  • Letter of inquiry

  • Order

  • Goods received note

  • Goods returned note

  • IOU

    Document sent by seller

  • Price list

  • Catalogue

  • Quotation

  • Tender

  • Advice note

  • Packaging note

  • Delivery note

  • Consignment note

  • Invoice

  • Pro forma invoice

  • Credit note

  • Debit note

  • Receipt

  • Statement of account

    Means of Payments

    These are the methods or ways the buyer may use to settle debts arising from a business transaction.

    These are various means of payments that can be used.

    These means of payments can be put into the following groups;

    i) Cash

    ii) Means of payment provided by the post office

    iii) Means of payments provided by the commercial banks

    iv) Means of payments which arise from private arrangements between sellers and buyers

    v) Other means of payment.

    i) Cash

    This refers to the use of notes and coins to make payments. Currency notes and coins are issued by the central Bank of Kenya and are therefore legal

    -Legal tender means everyone is obliged by law to accept them as a means of payment i.e. no one can refuse to accept them as they are backed
    by the

    Notes and coins are available in different denominations as follows;Coins; 5cents, 50cents, sh.1, sh.5, sh.10 and sh.40
    Notes;,sh.50,sh.100, sh.200,sh.500 and sh.1000.
    Coins are suitable for settling small debts and are acceptable as legal tender up to a certain maximum e.g. 50cents coins the maximum is sh20 and sh.1 the maximum is ksh.100.

    Advantages of cash as a means of payment:

    i) It is the only means of payment which is a legal tender

    ii) Convenient for settlement of small debts

    iii) Convenient to people with or without bank accounts

    iv) Cash is readily usable

    Disadvantages of cash as a means of payment

    i) Not convenient to carry around

    ii) Cash can be lost or stolen easily as it is readily usable

    iii) Payment is difficult to prove unless a receipt is issued

    Circumstances under which cash payment is appropriate

    i) Where the amounts involved are small

    ii) Where the payee (receiver) does not accept other means of payment

    iii) Where cash is the only means available

    iv) Where the payee requires cash(money) urgently

    v) Where there is need to avoid expenses
    associated with other means of payments

    ii) Means of payments provided by the banks
    Commercial banks are financial institutions that accept deposits to and withdrawals from them.

    They also lend money to customers.

    Examples of commercial banks include:Commercial bank of Kenya, National bank of Kenya, Barclays bank, and Co-operative bank e.t.c
    -There are various means of payments provided by the commercial banks.

    They are:

    a. Cheques

    b. Bank drafts/bankers cheques

    c. Credit transfers

    d. Standing orders

    e. Travellers cheques

    f. Telegraphic transfers

    g. Debit cards

    h. Electronic fund Transfer(E.F.T)

    a) Cheques

    This is a written order by an account holder with the bank (drawer) to the bank (drawee) to pay on demand a specified amount of money to the named
    person (payee) or the bearer Parties to a cheque

    i) Drawer

    This is the person or institution who writes and issues thecheque.He is usually a current account holder with the bank

    ii) Payee

    The person or institution to be paid

    iii) Drawee

    The bank(where the drawer has an account)
    Details on a cheque; they include:

  • Date when it is issued
  • Name of the drawer
  • The name of the payee, except in bearer cheques
  • The name of the drawee(bank)and branch from where it is issued
  • Amount to be paid in figures and in words
  • The account number of the drawer
  • The signature of the drawer
  • The cheque number and bank code
  • The appropriate revenue stamps

    Types of cheques

    i) Open cheques
    ii) Crossed cheques
    iii) Bearer cheques
    iv) Order cheques
    i) Open cheques

    This is acheque that can be presented for payment over the counter. You present it and cash is paid to you.

    ii) Crossed cheques

    This is acheque that bears two parallel lines on the face. This means the cheque cannot be cashed over the counter. The cheque is deposited in an
    account (payee’s account)
    The payee then withdraws the money from his/her account

    A crossed cheque can be opened by the drawer signing twice on its face.

    -A crossing can be general or special
    -General crossing-general crossings only contains the two parallel lines.

    This implies that the cheque will be paid through any bank in which it is deposited.

    -Special crossings-Has other instructions included in the crossing i.e;

  • Not negotiable-Means the cheque can be transferred by the payee to a third party, but he third cannot transfer the cheque (only the original payee can transfer the cheque)
  • Account payee only-Means the cheque should be deposited in the account of the payee.
  • Not transferable-Means there is no negotiation or transfer of the cheque

    iii) Bearer cheques

    This cheque does not have the name of the payee
    written on it. The person presenting it to the bank is the one who is paid.

    iv) Order cheque

    The cheque bears the name of the payee. The bank pays this particular payee the amount stated in the cheque after proper identification

    Dishonouring a cheque

    A cheque is dishonored if the bank refuses to pay and returns the cheque to the drawer.

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