The Important of

BUSINESS DOCUMENTS

Stages of Financial Recording

Letter of enquiry, quotations, orders, delivery documents, invoice, credit note, statement, cheque, receipt

Sales book, sales returns book, purchases book, purchases returns book, cash book, general journal

Post to General Ledger, Debtors Ledger, Creditors Ledger

Balance ledger accounts and extract a Trial Balance

Prepare Final Accounts and Balance Sheet

Calculate Net Profit and Capital Employed

Business Documents Sequence

Letter of Enquiry
from the Buyer

Quotation sent by
Seller

Order is placed by
the Buyer

Delivery Docket
signed for Seller

Invoice sent by
the Seller

Letter of
Complaint by
Buyer

Credit note issued

by Seller

Statement sent by
Seller

Cheque paid by
buyer and Receipt
issued by Seller

Letter of Enquiry
Finding out information about the products and
services available, prices of goods and delivery options
Treatment of Letter of Enquiry
Buyer

Seller

- Check name and address - Check the name and

are correct
address
- File a copy of the letter of - Send a quotation
enquiry
- File the letter

Quotation
It is sent based on the letter of enquiry giving
information of the goods available, price and any
discounts and delivery options
Treatment of Quotation
Buyer

Seller

- Compare all the

quotations for the best
deal
- File the quotation

- Check name and address

are accurate
- File a copy of the
quotation sent

Order
Based on the best quotation, the buyer places an Order
with the seller to send the goods and the terms
outlined in the Quotation
Treatment of Order
Buyer

Seller

- Check the name and

address
- File a copy of the Order
placed

- Check the name and

address against the
quotation
- Check the stock levels
and credit rating
- File the Order

Delivery Docket
This document provides proof that the goods were
delivered and have them checked before signing the
docket
Treatment of Delivery Docket
Buyer

Seller

- Check the name and

address
- Check that they are the
correct goods ordered
- File a the delivery docket

- Check the name and

address
- Check the details
according to the order
- File a copy of the delivery
docket

Invoice
Sent by the Seller outlining the quantity, description
and price of the goods and any discount which has
been offered.
Treatment of Invoice
Buyer

Seller

- Check the name and

address are correct
- Check that they are the
correct goods as per
order
- Check the calculations
- File the invoice

- Check the name and

address
- Check the details are
correct
- Check the calculations
- File a copy

Letter of Complaint
This is only sent if the goods ordered are incorrect or
damaged and buyer is seeking a replacement or
discount.
Treatment of Letter of Complaint
Buyer

Seller

- Check the name and

address
- Check the details are
correct as per order and
invoice
- Identify the problem
- File a copy

- Check the name and

address
- Check the details as per
order and invoice
- Investigate the problem
with the goods delivered
- File the letter of
complaint

Credit Note
Offered by the seller to the buyer an alternative to cash
so the buyer can order different goods at a reduced
price.
Treatment of Credit Note
Buyer

Seller

- Check the name and

address
- Check the details with
the letter of complaint
- Check the calculations
- File the credit note

- Check the name and

address
- Check the details with
the letter of complaint
- File a copy of the credit
note

Statement of Account
The seller issues this to the buyer at the end of the
month outlining the transactions that have taken place
and the money owed.
Treatment of Statement of Account
Buyer

Seller

- Check the name and

address
- Check the calculations
- File the statement

- Check the name and

address
- Check the calculations
- File a copy of the
statement of account

Cheque
Payment made by the buyer to the seller for goods
purchased on the amount owing.
Treatment of Cheque
Buyer

Seller

- Complete the cheque

correctly and counterfoil
- Check the name and
amount is correct

- Check the details are

correct on the cheque

Receipt
A receipt is proof of purchase by the buyer and that the
goods were paid for.
Treatment of Receipt
Buyer

Seller

- Check the details are

correct on the receipt
- File the receipt

- Complete the receipt

- Check the name and the
amount is correct

Gross Margin Ratio

! Gross margin ratio is the ratio of gross profit of a

business to its revenue. It is a profitability ratio

measuring what proportion of revenue is converted
into gross profit (i.e. revenue less cost of goods sold).

! Gross margin is calculated as follows:

Gross Margin =

Gross Profit
Revenue

! Gross profit and revenue figures are obtained from the income

statement of a business. Alternatively, gross profit can be calculated by

subtracting cost of goods sold from revenue. Thus gross margin formula
may be restated as:

Gross Margin = Revenue Cost of Goods Sold

Revenue

Example 1
For the month ended March 31, 2011, Company X
earned revenue of $744,200 by selling goods costing
$503,890. Calculate the gross margin ratio of the
company.
Solution
Gross margin ratio = ( $744,200 $503,890 ) /
$744,200 0.32 or 32%

Example 2
Calculate gross margin ratio of a company whose cost
of goods sold and gross profit for the period are
$8,754,000 and $2,423,000 respectively.
Solution
Since the revenue figure is not provided, we need to
calculate it first:
Revenue = Gross Profit + Cost of Goods Sold
Revenue = $8,754,000 + $2,423,000
Revenue = $11,177,000
Gross Margin Ratio = $2,423,000 / $11,177,000 0.22 or 22%

Mark up Formula
Profit x 100%
Cost Price
1
An item costing RM40 is sold for RM55. Calculate the
mark-up?
RM15 x 100 %
RM40 1
= 37.5%

Margin Formula
Profit x 100 %
Selling Price 1
Cost price RM40 and the selling price is RM50.
Calculate the profit margin.
RM10 x 100 %
RM50
1
= 20%