Business Document types

Source Document – Provides the evidence that a transaction has actually taken place
External Source Document – Generated outside the business or created by the business to send out
Internal Source Document – Generated within the business and retained withing the business
Credit Note – Used when a customer has returned goods purchased or been overcharged on their original purchase
Statement – Summary of invoices and creidt notes issued to the customer and payments received from the customer
Receipt – May be prepared when money is received by the business
Purchase Order – Purchaser issues this to a supplier listing what goods they want to order
Invoice – Details what the customer has purchased including date, description and quantity.
Tax Invoice – An invoive which meets the extra requirements whe a business is registered for GST
Cheque Butt – Shows details about a cheque written including date, person or business being paid, reason for payment and amount
Remittance Advice – Shows details of who is making a payment and what they are making the payment for

Business Terminology

Accounts Payable – Also known as creditors
Accounts Payable – amounts our business owes someone else
Accounts Receivable – also known as Debtors
Accounts Receivable – amounts someone owes our business
Assets – resources controlled by our business as a result of past events
Bad Debt – an amount owed to us which is uncollectable and is written off
Non-Current Assets – also known as Fixed Assets
Non-Current Assets – are assets of permanent nature required for the normal conduct of a business and which aren’t intended for resale as part of the business operations
GST – Goods and Services Tax of 15%
Inventory – raw materials, work in progress and goods held for resale by the business
Inventory – also known as Stock
Liabilities – a loan or any other amount of money owed to someone else
Mark up – the amount added to the cost of the goods to make a profit for the business
Net Profit – the difference between the income and expenses of a business
Net Profit – also known as net income or net surplus
Partnership – business entity owned by more than 1 person
Shareholder – someone who owns shares in a company
Sole Trader – business owned by 1 person

Business Document Flow

Business A prepares a purchase order which it sends to Business B.

Business B receives the purchase order from Business A, locates the goods and packages them up to send to Business B. Business B also prepares an invoice which they may use as a packing slip as well. The invoice could be sent with the goods or sent at a later date to Business A.

When Business A receives the invoice and goods they will compare what has been sent is what they ordered by comparing them to the purchase order copy they kept.

When Business A confirms they have received what they ordered, they will pay the invoice using a cheque or paying online. They may also send back a remittance advice so business B knows who the payment comes from.

When business B receives the payment from Business A they may issue a receipt.

Business B will bank any cheques/payments they have received into their bank account.
If Business A has not paid by the end of the month, Business B may send a statement which shows the amount still owing by Business A.

Sometimes Business B may issue a credit note if the items sent to Business A are damaged or missing to reduce the amount Business A owes to Business B.

IRD Document Links

IR320 Smart Business
IR1010 Business Support in NZ
IR1022 Online Trading

Understanding Business terminology for the it professional

At some point most IT professionals are going to encounter the business world.

There are probably two key instances in which this could happen:

  1.  Running their own business – As a sole trader in the business world it is important to have a good understanding of business processes and different document types, also how the business document flow works.  This is essential as there are well defined systems already in place in the world and we need to fit in with them if we want to work with other companies (and not just annoy them).
  2. Working on a business system for a client.  From a system design point of view it is essential to understand the terms and the document types.  Misunderstanding an invoice compared to say a receipt could have significant impact on how a system could work for a company.  It is also important to understand the individual needs of a company, as every one will operate slightly differently