Accounting

Business transaction and documentation-FA1(ACCA)

In this chapter you will learn all necessary points and concept about business transaction and documentation which a business uses.

Business

There are many definition about business just like it is the process of making profit. We have different meanings and definitions for business some of them are following.

  • An organization which provide employments.
  • Organization which provides services and goods for making profit.
  • An organization which uses economics and natural resources to produced goods and services.

Profit: if a business is makes more money then it spent, it is said to be profit.

Business, Company, Entity and Firm

Business: Organization which exist or have intention to make profit and it does not includes such as local authority and charity.

Company: A legal form usually have limited liability, company may run as a charity company.

Entity: An organization which have specified goal or work every individual for a single or common goal.

Firm: business which is not constituted as business such as partnership

Note: Business is always separate form its entity or owner.

Dual effect of financial transaction in business

Simply it is mean that every transaction has dual effect means every debit transaction has a credit entry.(if you buy a car on cash then your transaction entry will be debit car(fixed or non-current asset) credit cash(current asset).

Internal and External documentation

Internal document means confidential documents within business and an external document can use outside the organization.

Example of internal documents (staff timesheet, credit note, cheque, expense claim, supplier and inventory list etc).

Example of external documents such as quotation, letter of enquiry, sales order, acknowledgement note, delivery note etc.

Invoice: an invoice is mean of demanding for payment. When a business sale something it will send a piece of paper for demanding payment and when buy something it will get a piece of paper mentioning payment and tax payable due on time.

Usually invoice shows

  • Supplier name & address
  • purchaser name ad address
  • invoice number
  • transaction date
  • quantity
  • description
  • Amount for that purchase

On import and export invoices FOB usually found, FOB stand for “free on board”.

EX work means delivery cost is not included in an invoice.

Advice and delivery note is usually send when delivers good, advice show customer to advice if you recommend anything change in good.

Delivery note is used to confirm that good is has been delivered.

Credit note: sent by supplier for sales return.

Debit note: sent by customer for issuing credit note.

E- Commerce: E stand for electronic commerce and commerce means exchanging of goods. Business on internet is now possible you can do business around the world through e-commerce.

Discount

reduction in price of a good. there are two types of discount.

  1. Cash discount: reduction in cash or amount payable when you pay for good.
  2. Trade discount: reduction on goods you purchase usually when you purchase in bulk quantity.

Discount practical example

Good purchase with the list price of 1800, calculate 10% discount?

Discount=list price *discount/100 (1800*10/100)=180

Sales tax: obligation which will have to pay to government whenever making any sale, there are two types of sales tax.

  1. Input sales tax: pay when purchase
  2. Output sales tax: pay whenever makes any sale.

Example for sales tax

Y sells a good worth 1000 net, calculate sales tax if it is 10%?

sales tax=net price*sales tax/100 (1000*10/100)=100.

Hopefully you understand the “business transaction and documentation” chapter very well.

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Naveen Rajput

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