Common Mistakes

Common Mistakes: Business Documents as a Source of Information

This chapter requires students to identify types of business documents, explain their functions, arrange the document flow and calculate discounts accurately. Below are the common mistakes that often cost marks, together with how to avoid them.

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Confusing source documents with non-source documents

Mistake: treating the Statement of Account and the Bank Statement as source documents. How to avoid: remember that a non-source document only summarises or reminds of transactions that have already happened (the Statement of Account summarises credit dealings between seller and customer; the Bank Statement summarises bank-account transactions) and is not used to make the first record in the books.
Mistake: assuming every paper received in a business is a source document. How to avoid: a source document is the original proof that becomes the basis for recording a transaction (for example Cash Bill, Receipt, Payment Voucher), whereas a non-source document does not trigger the original entry.
Mistake: forgetting to give correct examples in a comparison question. How to avoid: memorise the two main non-source documents (Statement of Account and Bank Statement) so you never mistakenly list them among source documents.

Confusing the functions of similar source documents

Mistake: equating a Receipt with a Payment Voucher. How to avoid: a Receipt is proof that money has been RECEIVED and is issued by the receiver to the payer, while a Payment Voucher is an internal document that AUTHORISES and supports a payment before money goes out.
Mistake: getting the issuer and purpose of the Debit Note and Credit Note wrong. How to avoid: a Debit Note is issued by the seller to INCREASE the amount the buyer must pay (for example an undercharge or extra charge), while a Credit Note is issued by the seller to REDUCE that amount (for example goods returned or an overcharge).
Mistake: mixing up the Cheque Counterfoil with the Bank Slip/Cheque Deposit Slip. How to avoid: the Cheque Counterfoil is proof of a payment made by cheque, kept by the payer, while the Bank Slip/Deposit Slip is proof of paying cash or a cheque into a bank account.
Mistake: not distinguishing the Petty Cash Voucher from the Payment Voucher. How to avoid: a Petty Cash Voucher supports small expenses paid out of petty cash, while a Payment Voucher supports the business's larger, general payments.

Errors in calculating trade discount and cash discount

Misunderstanding the document flow and cash versus credit transactions

Mistake: arranging the document flow chart in the wrong order. How to avoid: practise the logical sequence of a transaction between buyer and seller from the start (ordering) to settlement (payment and proof of receipt) so every document sits in its correct position.
Mistake: using credit-transaction documents for a cash transaction. How to avoid: for a cash transaction, documents such as a Cash Bill, Receipt or Cash Register Slip are issued immediately when payment is made; for a credit transaction, payment is made later and is followed by documents such as the Statement of Account.
Mistake: thinking a Receipt is only for cash sales. How to avoid: a Receipt is issued whenever money is received, including when a customer settles a credit debt, so it can appear in both cash and credit transactions.

Errors in completing the details of a source document

Example: correct order of trade discount and cash discount

Item	RM
List price	2,000
Less: Trade discount (10%)	200
Invoice amount (net)	1,800
Less: Cash discount (5% on RM1,800)	90
Actual payment	1,710

Trade discount is only a deduction on the document and is not recorded in the books; only cash discount (calculated on the net amount) is recorded.

What is the main difference between a source document and a non-source document?

A source document is the original proof that becomes the basis for the first record of a transaction in the books (for example a Cash Bill, Receipt or Payment Voucher), while non-source documents (the Statement of Account and Bank Statement) only summarise or remind of transactions already recorded and are not used to make the original entry.

Does trade discount need to be recorded in the books of account?

No. Trade discount is only a deduction on the document to arrive at the net invoice value and is not recorded in the books. Only cash discount, calculated on the net amount after trade discount, is recorded as an incentive for prompt payment.

Who issues the Debit Note and Credit Note, and when?

Both are issued by the seller. A Debit Note is issued to increase the amount the buyer must pay, for example when there has been an undercharge, while a Credit Note is issued to reduce that amount, for example when goods are returned or there has been an overcharge.

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