Commercial Document . They are the documents in which the agreements, deals, agreements between companies, merchants or between people who carry out commercial acts are recorded .
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- 1 Importance
- 2 Classification of Commercial Documents
- 3 Accounts and Receivables and Payments
- 1 The Credit Department
- 2 Bad Accounts (bad accounts)
- 3 Recovery of bad debts
- 4 Internal Control over accounts receivable collections
- 4 Explanation of some Current Commercial Documents
- 5 People involved
- 6 Source
The commercial documents are sent to the Accounting Department where the accountants and accounting assistants take from them the necessary data to carry out the journal entries in the books. The larger the company, the greater the need for the use of documents. Commercial documents take shape at the time the operations are carried out. Its importance from the accounting point of view is that, to record any operation in the Daily Book , said entry must be covered by some document that justifies the veracity of the operation.
Classification of Commercial Documents
Commercial Documents are classified into two groups:
- Current or Common Commercial Documents.
- Request for quotation.
- Purchase order.
- Sales invoice.
- Dispatch Note.
- Commercial Debit Note.
- Commercial Credit Note.
- Proofs of Internal Control .
- Workers Card.
- Payroll .
- Inventory card , etc.
- Negotiable or Credit Documents:
- The bill of exchange
- The promissory note
- The Letter of Credit.
- Certificate of deposit.
- Pledge Bond.
- The check.
- Bill of Lading.
Accounts and bills receivable and payable
Different types of Items Receivable
A receivable occurs when a business (or a person) sells goods or services to a second business (or person) on credit. An item receivable is the seller’s right to the buyer for the amount of the transaction.
The receivables are monetary rights against businesses and individuals. They are mainly acquired by selling goods and services and lending money.
The two main types of receivables are accounts receivable and documents receivable. Accounts receivable from a business are the amounts owed to it by its customers. They are current assets.
Receivables are more formal than accounts receivable. In the case of a receivable, the debtor promises, in writing, to pay the creditor a defined amount at a defined future date.
The Credit Department
Customer purchasing goods using a credit card is buying on credit. This operation creates a receivable in favor of the store. Most of the companies that have a high proportion of their sales on credit maintain a separate credit department. This department evaluates customers who apply for credit cards using standard formulas that, among other factors, include the applicant’s income and credit history. After approving the customer, the credit department oversees that customer’s payment records. Customers with a timely payment history may receive higher credit limits. Those who do not pay on time have their limits lowered or canceled.
Bad Accounts (bad accounts)
Most of the sales that businesses make today are made on credit, and in many cases supported by invoices, which we already know are recorded from the point of view of accounting within accounts receivable.
It may happen that it is impossible to collect some of these invoices, either due to the bankruptcy of the client, death or change of address, etc., when this happens these accounts receivable we have to transfer them to the expenses of the year, since the bad debt constitutes a loss for the business.
As in each year, there must be a match between income and expenses; and credit sales are to be recorded as income for the year in which they occur, it is logical that within that same year the losses that occur due to Accounts Receivable, arising from those credit sales that become uncollectible; but normally it happens that for the closing date, there is still no security or certainty of which invoices were definitely lost, consequently, as there is a need to record the expense or loss of Accounts Receivable due to possible uncollectibility, from the income for the year (credit sales), we must proceed to make an estimate of possible losses,
On the closing date, the estimation of possible losses is made, then it is charged to an expense account called “Loss in Bad Accounts” that is to be included within the Operating Expenses, in the Statement of Profits and Losses, and the estimate is credited in the entry to a valuation account called ¨Provision in Bad Debts¨, which will appear in the Balance Sheet, decreasing the Accounts Receivable.
In the following exercise, when it is truly concluded that some of these invoices are impossible to collect, the provision is decreased and, consequently, the Accounts Receivable are canceled.
Bad debt recovery
It may happen that some of those invoices that have been considered really lost, and that as a consequence have been charged to the Provision and credited to the Accounts Receivable, are recovered, that is, that some of these clients to obtain some new credit, or to To have references to carry out some operations, proceed to cancel the respective invoices: in this case we are facing a Recovery because we had already considered them really lost.
Example : after being considered uncollectible, it is canceled in cash.
As when we consider the invoice lost, we charge it to the Provision, now in the recovery we proceed to pay it to cancel the charge.
Provision in Bad Debt Accounts XXX
Internal Control over accounts receivable collections
The bookkeeper should not be allowed to handle the cash. He should only receive remittance slips telling him which customer accounts to credit. By removing the cash handling tasks from the bookkeeper and preventing the supervisor from managing the accounts receivable senior assistant, the tasks are separated and internal control is strengthened. This reduces an employee’s opportunity to steal cash and then cover it up with a fake credit to a customer’s account. The owner must also be the one who prepares the bank reconciliation.
Documents receivable: these are more formal agreements than accounts receivable. Securities are commercial credit documents that constitute a written promise of payment, which have the characteristic that they are negotiable documents and that they cannot be asserted in other terms than those provided and required by the respective laws.
The Promissory Note: is a commercial credit document that constitutes an unconditional written promise, made from one person to another, signed by the subscriber, forcing them to pay at sight or a fixed or determined date, a sum of money to the order or to the carrier.
Letter of Credit: it is a contract by which a bank opens a credit on behalf of a client and in favor of a third party, and which will be canceled according to the conditions indicated in the contract. The Commercial Code (Art 459) establishes that the purpose of the Letter of Credit is to carry out a conditional exchange contract concluded between the debtor and the borrower, whose perfection depends on the latter making use of the credit that the latter opens.
Bill of Exchange: The Bill of Exchange is a document issued legally, by which a person sends another person to pay, at the order of himself or a third party, an amount of money, in the place and time determined The document.
The origin of the bill of exchange cannot be determined with certainty. Historical research has failed to define exactly the background of this institution in the period before the Middle Ages. However, there are Italian documents from the 12th to the 13th centuries that already have some characters that show the use of the letter; Those documents were in common use at medieval fairs, and that, in any case, the letter, before it became what it is today, has undergone a secular evolution, in which the appearance of endorsement as a form was decisive. peculiar transmission of that commercial document.
The letter takes its name from the primitive exchange contract. The change, which was originally manual or real (simple exchange of some currencies for others in the same place)
Thus the letter was born, it had to wait for the second half of the 16th century for this document, in a higher degree of evolution, to become a mere instrument of an exchange contract into a payment instrument.
In Cuba the use of the bill of exchange was legally implemented in 1886 with the entry into force of the Spanish Commercial Code, after the Triumph of the Revolution with the Socialist Company, it was deprecated until Agreement No. 3619 was taken / 1999 of the CECM, which experimentally authorized the use of bills of exchange, checks and promissory notes, but exclusively within the national territory. Since the entry into force of the aforementioned agreement, the use of bills of exchange has been booming in our country.
The person who orders to pay is the drawer ; the person to whom the letter is addressed and who pays is the drawee ; the person who collects the Bill is the holder or holder .
The Bills of Exchange can be drawn with different terms or terms, forcing each of these terms or terms to pay the bills.
On demand: must be collected within 40 days of issue and must be paid upon presentation.
Within days or months: it will be counted from its presentation and the Acceptance of the letter certifies it, counting from the day following said Acceptance.
On a fixed day : It is required to be paid on the date indicated.
Acceptance: it is the written statement made by the Drawee or another person, that he is in full agreement with the content of the letter, forcing himself to satisfy its amount, without extension terms, on the day indicated as expiration.
The Librado does not become a debtor until after having accepted.
Acceptor: recognizes the letter as good and agrees to make the payment.
The act by which it is performed is called Acceptance.
The endorsement: transmission of a credit title that legitimizes its new owner so that he can collect the amount contained in the document.
When the Taker endorses the letter to another person, it becomes by virtue of the transmission Endorser, and the acquirer Endorser.
The Protest: is the means of proving the lack of acceptance or payment, or both, of a Security Title to make it retain all the actions that normally emanate from it. It is the notarial act or document by which the lack of payment by the debtor of the expired credit is recorded.
Explanation of some Current Commercial Documents
Requisition : With this document the process for the purchase begins. It is a request made by the person or department that requires a certain item. It clearly specifies what is requested, the number of units, etc. This document must be signed by an authorized official, it is generally prepared in triplicate as follows:
- Original for the Purchasing Department.
- Duplicate for the Accounting Department.
- Tripled for the Requesting Department.
Request for Quotation: It is an important document for the adequate internal control and supervision of the Purchasing Department, since it constitutes evidence that the order was made with the supplier that offered the best prices and conditions. The Purchasing Department issues several requests for quotes that it sends to various suppliers, in which all the characteristics of the item and the conditions in which the company wishes are indicated.
Quote: It is a document that the supplier sends us, as a consequence of the request made, in which all the conditions in which the merchandise can be sold, the price of the item, conditions and payment, etc. are explained.
Purchase Order: It is the document issued by the purchasing company, authorizing the supplier to send the merchandise. It clearly establishes the fundamental requirements of the transaction and what is agreed by both parties.
This document is produced in original and several copies.
- Original for the Supplier.
- A copy for the Purchasing Department.
- A copy for the Accounting Department.
- A copy for the Warehouse, etc.
Sales invoice: It is the document issued by the supplier where the following is clearly indicated:
- Seller Name- Address .
- Buyer’s Name- Address.
- Description of the merchandise, quantity and price.
- Payment terms (credit, cash).
- Discounts granted or to be granted.
- How the merchandise will be shipped.
- Total amount to pay, etc.
This document must be accompanied by the Purchase Order , in addition an original is made that goes to the buyer and several copies that are distributed between the buyer and the seller according to the required needs.
Debit and Commercial Credit Notes : These are documents issued by the buyer or seller in order to adjust a certain operation, and as a consequence, adjust accounts in the accounting.
The Bill of Exchange: It is a Title of Credit, which constitutes a written order, by means of which a person called Drawer, sends to his order or to the other person named Policyholder or Beneficiary, a certain amount on a certain date, to a third person called Librado.
The Bill of Exchange must contain the following requirements:
- The denomination of Bill of Exchange inserted in the same text of the Title and expressed in the same language used in the drafting of the document.
- The pure and simple order to pay a certain sum.
- Name of who must pay (Drawn)
- Indications of the expiration date.
- Place where payment must be made.
- Name of the person in charge of which payment must be made (Beneficiary or Policyholder).
- Date and place where the letter was issued.
- The signature of the person who turns the letter (Drawer)
- The Drawee: the person to whom the payment order is given (who must pay)
- The Drawer or Drawer: the person who orders the payment.
- The Beneficiary: is the one to whose order the payment must be made.
- The Surety or Guarantor: the person who guarantees the payment of the bill