Friday, 17 February 2023 14:02

Financial records in Business - Grade 7 Business Studies Revision Notes

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Business Transactions

  • A business transaction is a deal between two or more people involving exchange of goods and services in terms of money.
  • Business transaction may take place on cash basis; in which case goods are paid for before or on delivery or a short while after delivery
  • Business transaction may also take place on credit basis; which means payment is made after a specified period from the date of delivery of the goods or the provision of the services

Documents Used At The Inquiry Stage

This is the first stage in transaction. An inquiry is a request by a prospective buyer for information on available goods and services. It is aimed at establishing the following;

  • Whether the goods or services required are available for sale
  • The quality or nature of the products available
  • The prices at which the goods or services are being sold
  • The terms of sale in respect to payment and delivery of goods or services Some of the documents used at this stage include;

Letter of inquiry;
This is a letter written by a potential buyer to the seller to find out the goods and services offered by the seller.
A letter of inquiry can be general or specific. A specific letter of inquiry seeks for information about a particular product.
Reply to an inquiry
The seller may reply to the letter of inquiry by sending any of the following documents;

  • Price list
  • A catalogue
  • Quotation
  • A tender
    1. A price list
      This is a list of items sold by the trader together with their prices. The information contained in a price list is usually brief and not illustrated and may include;
      • Name and address of the Seller-List of the goods and services
      • The recommended unit prices of the products -Any discounts offered
        Price list show the prices of the commodities at that time.
    2. A catalogue;
      A catalogue is a basket which briefly describes the goods a seller stocks.
      It is normally sent by the seller to the buyer when the buyer sends a general letter of inquiry. It usually carries illustrations on the goods stocked, and could be in the form of attractive and colorful pictures
      The content of a catalogue includes the following;
      • Name and address of the seller
      • Details of the products to be sold; inform of pictures and illustrations
      • The prices of the products
      • After-sales services offered by the seller
      • Packaging and posting expenses to be incurred
      • Delivery services to be used
      • Terms of sale
        Catalogues carry more information than the price list and they are more expensive to print.
    3. Quotation;
      This is a document sent by a seller to a buyer in response to a specific letter of inquiry. It specifies the conditions and terms under which the seller is willing to supply the specified goods and services to the buyer.
      The content of a quotation includes the following;
      • Name and address of Seller-Name and address of the buyer
      • Description of goods to be supplied -Prices of the commodities
      • Terms of sale i.e. discounts, time of supply, delivery -Total of the goods to be supplied
        Quotations are normally in form of letters, but many large-scale businesses have pre-printed quotations forms which they readily send to the potential customers.
    4. A Tender
      This is a document of offer to sell sent by a seller to a buyer in response to an advertised request
      Tenders contain the following;
      • Date when the tender advertisement was made -Mode of payment
      • Date of making document -Discounts given
      • Name and address of prospective seller called the tenderer
      • The prices at which the goods can be provided
      • Period of delivery -Mode of delivery
      • Tenders are delivered in sealed envelopes which are opened by the buyer on a specified date
        The winning tender is usually awarded on the of the lowest quoted price although the buyer is not obliged to accept this especially if quality is likely to be low
        Tenders are not binding unless accepted by the buyer.

Documents Used At The Order Stage

After receiving replies to inquiry in form of price list, catalogue or Quotation, a prospective buyer will study the terms and conditions stated in them, and then may decide to buy products or not.

  1.  An Order
    If a prospective buyer decides to purchase an item(s), he or she then places an order
    An order is a document sent by a potential buyer to a seller requesting to be provided with specified products under specified terms and conditions
    -An order issued for goods is called a local purchase order (LPO) An order issued for services is called a local service order (LSO)
    Ways of making an order
    1. Filling an order form. This is a pre-printed document that is used for making orders
    2. Writing an order letter
    3. Sending an e-mail, faxing or sending a short text message
    4. Giving a verbal order. Verbal orders have the disadvantage in that they can be misunderstood and there would be no record of items ordered
      Where written orders are made, the potential buyer keeps a copy of the order for use in verifying the goods ordered when they are delivered.
      A written order may contain the following;
      • Name and address of the buyer
      • Name and address of the seller
      • The number of the order
      • Quantities ordered and total amount to be paid
      • Description of the goods ordered
      • Price per item
      • Special instructions on such matters as packaging and delivery
  2. Acknowledgement note
    On receiving the order, the seller sends the buyer an acknowledgement note An acknowledgement note is a document sent by the seller to the prospective buyer to inform him/her that the order has been received and it is being acted upon.
    After sending the acknowledgement note, the seller has to decide whether to extend credit to the buyer or not. At this stage, the seller has the following options;
    1. If the seller is convinced that the buyer is credit worthy, arrangements are made to deliver the ordered goods or services to the buyer.
    2. If the seller is not sure of credit worthiness of the buyer, a credit status inquiry can be issued to the buyer’s bankers or to other suppliers who deal with the buyer to ascertain the credit worthiness.
    3. If the buyer is not credit worthy then a polite note or a pro forma invoice can be sent to him/her

A proforma invoice

This is a document sent by the seller to the buyer requesting the buyer to make payment for goods or services before they are delivered. It indicates that the seller is not willing to grant the buyer credit.

Functions of a proforma invoice

  1. A polite way of asking for payment before the goods are delivered
  2. Sent when the seller does not want to give credit
  3. Used by importers to get customers clearance before goods are delivered
  4. Issued to an agent who sells goods on behalf of the seller
  5. Show what the buyer would have to pay if the order is approved
  6. Can be used to serve as a quotation

Circumstances under which a pro-forma invoice may be used

  • If the seller does not want to give credit
  • If the seller wants to sell goods through an agent
  • If the seller wants to get clearance for imported goods
  • If the seller wants it to function as a quotation
  • If the seller wants to inform the buyer what he/she pay if the order is approved e.t.c


Documents Used At The Delivery Stage

After the seller has accepted the order sent an acknowledgement note and where necessary the pro-forma invoice, the seller then prepares the goods for delivery to the buyer. This can be done in the following ways;

  • The seller can ask the buyer to collect the goods
  • The seller can deliver the goods to the buyer using his/her own means of transport
  • The goods can be delivered to the buyer through public transport
  • The services(s) can be rendered to the buyer at the sellers or the buyer’s premises or at any convenient place.

The main documents that are used at this stage are;

  1. Packing note; Before delivery goods are packed for dispatch. This is a document prepared by the seller showing the goods contained/packed in every container, box or carton being delivered to the buyer
    • A copy of the packing note is packed with the goods to make/help the buyer have a spot check.
      The contents of a packing note include;
    • Description of goods packed
    • Quantities of goods packed
    • The means of delivery
      NOTE: A packing not does not contain prices of goods. This ensures that those people involved in checking and transporting goods do not know the value of goods. This is done as a precaution against theft.
  2. Advice note; This is a document sent by the seller to the buyer to inform the buyer that the ordered goods have been dispatched. It is usually sent through the fastest means possible.
    • It contains the following;
    • The means of delivery
    • A description of the goods
    • The quantity dispatched -Date
    • Name and address of buyer and seller
      Functions of an advice note
      1. Informing the buyer that the goods are on the way so that in case of any delay in delivery, the buyer can make inquiries
      2. Alerting the buyer so that necessary arrangements can be made for payments when the goods arrive
      3. Can serve as an acknowledgement note, where one is not sent/
  3. Delivery note; This is a document sent by the seller to the buyer to accompany the goods being delivered.
    -A delivery note is always made in triplicate (3), one copy remains with the seller and two sent to the buyer.
    -When the goods reach the buyer, he/she confirms that the goods are the ones ordered for and that they are in the right condition by comparing the delivery note, the order and the goods. If the buyer is satisfied with the goods, he/she signs the two copies, retains the original and send the copy back to the seller. This serves as evidence that the goods have been received in the right condition and in the right quantities.
    -Some businesses keep delivery books in which the buyer signs to indicate that goods have been received in good condition. A delivery book is used by the seller if he/she delivers goods by himself/herself as an alternative to a delivery note
    The content of a delivery note includes the following;
    1. Name and address of the seller
    2. Name and address of the buyer
    3. Date of delivery
    4. Delivery note number
    5. Description of the goods delivered
    6. Quantities of the goods delivered
    7. Space for the buyer to sign and comment on the condition of the goods received.
  4. Consignment note
    This is a document prepared by a transporter to show that he/she has been hired to deliver specified goods to a particular buyer. This document is used when goods are delivered to the buyer by public means of transport e.g. by trains.
    -The seller is the consignor, the buyer is the consignee and the goods the consignment
    -The transporting company prepares the consignment note and gives the seller to complete and sign. The seller then returns the note to the transporter (carrier) who takes it together with the goods to the buyer.
    -On receiving the goods, the buyer signs the consignment note as evidence that the goods were actually transported.
    The content of a consignment note includes the following;
    • Details of the goods to the transported
    • Name address of seller (consignor)
    • Name and address of buyer (consignee)
    • Terms of carriage and conditions of transporting the goods
    • The transportation cost
    • Handling information
    • Destination of goods
  5. Goods Received note; This is a document sent by the buyer to the seller to inform him/her that goods sent have been received. It usually prepared in duplicate, the original is sent to the seller and the copy retained by the buyer.
    The contents of the goods received note include;
    • Date of the document
    • Name and address of the buyer
    • Name and address of the seller
    • Corresponding purchase order
    • Details of goods received
    • Date the goods were received.
  6. Returned goods note/Damaged goods note; If goods are damaged on the way, the buyer may return them to the seller. The buyer may also return goods for other reasons e.g.
    • Wrong type of goods
    • Excess goods
    • Wrong quality goods
      -When the goods are returned, the buyer informs the seller of the return by sending a goods returned note.
      -A goods returned note is a document sent by a buyer to a seller to inform him/her that certain goods are being returned to the seller.
      -Where the goods are returned because of damage, the note may be referred to as the damaged goods note.
      The contents of the goods returned note include;
    • Details of goods that have been returned to the seller
    • Date goods are returned
    • The number of (GRN)
    • Order number
    • Delivery number
    • Name and address of both buyer and seller
      -When the seller receives the note together with the goods, he issues a credit note

Documents Used At The Invoicing Stage

This stage involves the seller requesting or demanding for payment from the buyer for the goods or services delivered.
Some of the documents used at this stage include:

  1. Invoice
    This is a document sent to the buyer by the seller to demand for payment for goods delivered or services rendered.
    There are two types of invoices namely:
    1. Cash invoice-This is sent when payment is expected immediately after delivery thus acting as a cash sale receipt
    2. A credit invoice-This is sent when a buyer is allowed to pay at a later date.
      Functions of an invoice
      1. It shows the details of goods sold i.e. quantity delivered, unit price, total value of the goods and terms and conditions of sale.
      2. It is a request to the buyer to make payment
      3. It serves as an evidence that the buyer owes the seller a certain amount of money
      4. It is used as a source document in recording the transaction in the book of accounts.
        The contents of an invoice include the following:
        • Invoice number
        • Name and address of the seller
        • Name and address of the buyer
        • Date document is prepared
        • Details of goods repaired
        • Unit prices of goods delivered
        • Total value of goods
        • Discounts offered
        • E and O.E printed at the bottom
          The letters E and O.E (Errors and Omissions Excepted) means the seller reserves the right to correct any errors and omissions made in the invoice. -On receiving the invoice, the buyer verifies the contents using the local purchase order and the delivery note. If the invoice is in order, the buyer makes arrangements to pay the amount stated.
          Businesses which offer services issue a document called a bill, which serves the purpose of an invoice.
  2. Credit note
    This is a document sent by the seller to the buyer (credit buyer) to correct an overcharge. It is used to inform the buyer that the amount payable by him/her has been reduced
    An overcharge is an excess amount charged beyond the right price. Causes of overcharge may include;
    • Arithmetical errors like wrong addition
    • Price overcharges
    • Inclusion of wrong or unordered items in the invoice
    • Failure to deduct the allowable discounts
    • Return of goods (damaged goods)
    • Failure to note the return by the buyer of packing cases or containers used to deliver goods to him/her
    • Use of wrong price list.
      -The purpose of the credit note is to reduce the total invoice amount by the amount of the overcharge.
      -A credit note is usually printed in red to distinguish it from other documents.
      -Contents of a credit note include;
      • Name and address of the seller and the buyer
      • Credit note number
      • Date document is prepared
      • Description and value of goods returned by buyer (in case that was done)
      • Total overcharge

        Reasons why a seller would send a credit note to a buyer/circumstances under which a credit note is sent to a buyer.
        • When there is an overcharge in an invoice
        • When the original invoice had indicated items that were not supplied -When the buyer returns empty cases/crates that had been charged in the invoice.
        • When the buyer returns some goods to the seller
        • If the buyer was entitled to a discount which was not given or taken care of in the invoice.
  3. Debit note
    This is a document sent by the seller to the buyer to correct an undercharge on the original invoice. It is used to inform the buyer that the amount payable by him has been increased.
    -A debit note acts as an additional invoice.
    -An undercharge arises when amount charged on products is less than their right price.
    Causes of undercharge include:
    • Price undercharges on items
    • Arithmetic errors/mistaken in calculation
    • Omission of items in the invoice
    • Retention of crates and containers that were not involved by the buyer
    • Deductions of more discount than what was give/intended
      Circumstances under which a debit note will be sent to the buyer
      1. When there is an undercharge in the invoice
      2. If the buyer had been given a discount that was not due to him
      3. If some items had been omitted in the original invoice
      4. If the buyer decides to retain some empty containers or crates

Differences Between a debit note and a credit note

 1) Issued to correct an underchargeon the invoice.   1) Issued to correct an overchargeon the invoive. 
 2) Written on blue or black.  2)Usually written in red
 3) Issued when containers have notbeen returned   3) Issued when containers have been returned.


Documents Used At The Payment Stage

This is the final stage of a credit business transaction. It takes place after the invoice has been received and ascertained to be correct or where necessary, corrections made.
The documents used at the payment stage include;

  1. Receipt 
    This is a document issued to the buyer by the seller as proof that payment has been made.
    -Payment can be done in cash, cheque, other forms of money or in kind -The receipt also serves as a source document for making entries in books of accounts.
    Contents of the receipt include;
    • Date of payment
    • Name of the person making payment
    • Name of person/institution receiving payment
    • Amount paid in words and figures
    • Means of payment
    • Receipt number
    • Signature of person issuing the receipt.
      -The issuance of a receipt by the seller to the buyer after receiving payment marks the end of the credit transaction between the seller and the buyer (where payment has been done in full)
      -A receipt serves the same purpose as the cash sale slip
  2. Statement of Account  
    This is a document prepared by the seller and sent to the buyer, giving a summary of all the dealings/transactions between them during a particular period of time, usually a month. It has the following details;
    • Date when it was prepared
    • Name and address of the seller
    • Name and address of the buyer
    • Account number
    • Date column-where the date of each transaction is recorded
    • Particulars (Details)column-where the explanation of each transaction is shown
    • Money column
      • Debit column-increases in the amounts payable due to credit sales or under charge correction.
      • Credit column-Decrease in the amounts payable due to overcharges corrected or payments recorded.
      • Balance column-Amount owing after each transaction (Balance outstanding)
    • Any discounts allowed to the buyer
    • Date when the buyer is expected to clear the balance
    • Terms of credit e.t.c.
      -The statement of account enables the buyer to ascertain the correctness of the transactions which have taken place with the seller over the stated period.
  3. IOU
    An IOU (I owe you) is a document written by the buyer and sent to the seller to acknowledge a debt.
    -It does not specify date when settlement will be made. -It acts as evidence that a debt exists.

Methods Of Payments For Goods And Services

These are the methods or ways the buyer may use to settle debts arising from a business transaction. These are various means of payments that can be used. These means of payments can be put into the following groups;

  1. Cash
  2. Means of payment provided by the post office
  3. Means of payments provided by the commercial banks
  4. Means of payments which arise from private arrangements between sellers and buyers
  5. Other means of payment. E.g. Mobile transaction, Online payments like paypal


  • This refers to the use of notes and coins to make payments. Currency notes and coins are issued by the central Bank of Kenya and are therefore legal tender
  • Legal tender means everyone is obliged by law to accept them as a means of payment i.e. no one can refuse to accept them as they are backed by the law.Notes and coins are available in different denominations as follows; Coins; 5cents, 50cents, sh.1, sh.5, sh.10 and sh.40
    Notes;, sh.50, sh.100, sh.200, sh.500 and sh.1000.
  • Coins are suitable for settling small debts and are acceptable as legal tender up to a certain maximum e.g. 50cents coins the maximum is sh20 and sh.1 the maximum is ksh.100.

Advantages of cash as a means of payment:

  1.  It is the only means of payment which is a legal tender
  2. Convenient for settlement of small debts
  3. Convenient to people with or without bank accounts
  4. Cash is readily usable

Disadvantages of cash as a means of payment

  1. Not convenient to carry around
  2. Cash can be lost or stolen easily as it is readily usable
  3. Payment is difficult to prove unless a receipt is issued

Circumstances under which cash payment is appropriate

  1. Where the amounts involved are small
  2. Where the payee (receiver) does not accept other means of payment
  3. Where cash is the only means available
  4. Where the payee requires cash(money) urgently
  5. Where there is need to avoid expenses associated with other means of payments

Means Of Payments Provided By The Banks

Commercial banks are financial institutions that accept deposits to and withdrawals from them.
They also lend money to customers. Examples of commercial banks include: Commercial bank of Kenya, National bank of Kenya, Barclays bank, and Co-operative bank e.t.c
-There are various means of payments provided by the commercial banks. They are:

  1. Cheques
  2. Bank drafts/bankers cheques
  3. Credit transfers
  4. Standing orders
  5. Travellers cheques
  6. Telegraphic transfers
  7. Debit cards
  8. Electronic fund Transfer(E.F.T)


This is a written order by an account holder with the bank (drawer) to the bank (drawee) to pay on demand a specified amount of money to the named person (payee) or the bearer

Parties to a cheque

  1. Drawer-This is the person or institution who writes and issues the cheque.He is usually a current account holder with the bank
  2. Payee-The person or institution to be paid
  3. Drawee-The bank (where the drawer has an account) Details on a cheque; they include:
    • Date when it is issued
    • Name of the drawer
    • The name of the payee, except in bearer cheques
    • The name of the drawee(bank)and branch from where it is issued
    • Amount to be paid in figures and in words
    • The account number of the drawer
    • The signature of the drawer
    • The cheque number and bank code
    • The appropriate revenue stamps

Types of cheques

  1. Open cheques
  2. Crossed cheques
  3. Bearer cheques
  4. Order cheques
  1. Open cheques
    This is acheque that can be presented for payment over the counter. You present it and cash is paid to you.
  2. Crossed cheques
    This is acheque that bears two parallel lines on the face. This means the cheque cannot be cashed over the counter. The cheque is deposited in an account (payee’s account)
    The payee then withdraws the money from his/her account
    A crossed cheque can be opened by the drawer signing twice on its face. -A crossing can be general or special
    • General crossing-general crossings only contains the two parallel lines. This implies that the cheque will be paid through any bank in which it is deposited.
    • Special crossings-Has other instructions included in the crossing i.e;
      • Not negotiable-Means the cheque can be transferred by the payee to a third party, but he third cannot transfer the cheque (only the original payee can transfer the cheque)
      • Account payee only-Means the cheque should be deposited in the account of the payee.
      • Not transferable-Means there is no negotiation or transfer of the cheque
  3. Bearer cheques-This cheque does not have the name of the payee written on it. The person presenting it to the bank is the one who is paid.
  4. Order cheque-The cheque bears the name of the payee. The bank pays this particular payee the amount stated in the cheque after proper identification

Dishonouring a cheque

A cheque is dishonored if the bank refuses to pay and returns the cheque to the drawer.

-A cheque can be dishonored due to the following reasons:

  1. Insufficient funds in the account
  2. If the signature on the cheque differs from the drawers specimen signature in the bank.
  3. If the cheque is stalc i.e. presented for payment after six months from the date of issue.
  4. If the cheque is post dated-meaning the cheque is presented for payment earlier than the date on the cheque
  5. If the amount in figures is different from the amount in words
  6. If there are alterations on the cheque which are not countersigned by the drawer
  7. If the cheque is torn, dirty or defauld making it illegible
  8. If the account holder(drawer) is dead and the bank is aware of the fact
  9. If the drawer instructs the bank not to pay the particular cheque
  10. If the cheque contains errors which need to be corrected
  11. If the drawer becomes bankrupt or insane
  12. If the drawer has closed his/her account.

Advantages of using cheques  

  1. They are more secure than notes and coins because if they are lost or stolen, they can be traced to the person who cashed them.
  2. They are convenient to carry and can be used to pay large sum of money which would be otherwise inconvenient to pay using cash
  3. They can be transferred to a third party to make payment/cheques are negotiable
  4. Payment can be made by cheque without the need to travel to make payment
  5. They provide a record of payment because of the counterfaits.The counterfaits acts as proof that payment has been made.
  6. Under special circumstances, they can be cashed or discounted before maturity.

Disadvantages of using cheques

  1. Cheques can be dishonored
  2. Requires the payee to go to the bank and in some cases to have an account
  3. The drawer pays some charges e.g. charges for the cheque book
  4. Can only be issued by an account holder/the drawer must have an account
  5. They are not readily acceptable by everybody
  6. They do not provide immediate cash

Circumstances under which a cheque is appropriate as a means of payment

  • Where the amount of money involved is large
  • Where the policy of the business demands so
  • Where a cheque is the only means available
  • Where there is need to avoid other risks associated with other means of payments

Bank drafts/Banker’s cheques

-This is a cheque drawn on a bank i.e. a cheque drawn by one bank to another requesting the latter bank to pay a named person or institution a specified sum of money and charge it to the drawing bank
-It can also be drawn by a bank on the request of a customer. The customer fills in an application form obtained from a bank and hands it over to the bank together with the money she wants to transfer and a commission for the service.
-The bank then prepares the cheque and gives it to the applicant who can then send it to the payee
-A bank draft has the drawing bank’s guarantee for payment. It is therefore more readily acceptable than personal cheques.
-It is suitable when urgency is desired in the payment as it is more readily acceptable.

Credit Transfer

This is a means of payment provided by commercial banks to their current accounts holders who want to pay many people using one cheque/at the same time
-One cheque is drawn and is usually accompanied by a list of the people to be paid, the amount to be paid to each person and the addresses of the bank branches where the payment is to be made.
-The bank then ensures that a credit transfer is affected to the various bank branches and each payee is paid
-A credit transfer is usually used by employers to pay salaries to their staff members.

Standing Order

This is an instruction to a bank by an account holder to pay a named person or an organization a fixed amount of money at regular intervals over a specified period of time or until stopped
-It is a very useful means of payment for business people as it enables them to regularly pay their recurrent bills e.g. water, insurance, electricity, loan payment, hire purchase payment e.t.c

Traveler’s Cheques

This is a cheque drawn by one bank to another requesting the latter to pay a specified sum of money to a named bearer, who usually would have bought that cheque from issuing bank. The cheque holder pays the value of the cheque plus the charges for the services to the issuing bank.
-Travellers cheques are usually issued in fixed denominations and are very convenient for travel purposes, hence their name. They enable a person to travel without having to carry a lot of cash. The cheques are also readily acceptable as a means of payment.

Telegraphic Transfers

This is a method /means of transferring money offered by commercial banks to anybody who wants to send money to another. The sender is required to fill an application form and provide the following information among others:
-His/her name -The amount of money to be remitted
-Name of the payee -The bank where the money would be paid. The applicant is charged a commission and telegraph fee. The paying bank sends a telegram to the payee who has to identify himself/herself before the payment is made The method is fast and safe.

Debit Cards

These are plastic cards issued by financial institutions e.g. banks that enables a person to purchase goods and services from any business that accepts them. Debit cards are used to make payments from money held in ones accounts and are therefore an alternative to cash payments. Examples are ATM cards.

Electronic Fund Transfer (E.F.T)

EFT is a method of transferring money from one account to another where computers are used. The sender is required to fill an electronic fund transfer form provided by the bank which instructs the bank to transfer money from his/her account to a named account.
Information is then sent to the payee’s bank electronically and the amount in the account is increased accordingly. The method is very fast.

Means Of Payments Provided By The Post Office

The post office provides means of payments that can be used to transfer money from one person to another.
The means of payments provided by the post office to facilitate payments includes,

  1. Money orders
  2. Posta pay
  3. Postal orders
  4. Postage stamps
  5. Premium bonds
  1. Money orders
    A money order facilitates the transfer of money from one person to another through the post office (and/or bank)
    A money order is usually for a specified sum of money usually purchased with cash from the post office
    A person wishing to send money using this method visits a post office and completes an application form. Some of the details contained/given in the form include:
    • The amount of money to be remitted
    • Name of the payee
    • The name of the post office where the money order will be cashed
    • Name and address of the sender
    • Whether the money order is to be ordinary or sent by telegraph
    • Whether the sender wishes to be informed if the money has been paid
    • Whether the money is to be paid through a bank account or at the post office counter.
      The application form, money to be remitted and commission for the service is handed to the post office cleark who prepares the money order and gives it to the sender who may post it or send it to the payee.
      -Telegraphic money orders, the post office sends a telegram to the payee informing him/her to go to the post office and claim the money. -Before payment is made, the payee must;
    • Identify himself/herself by producing an ID card
    • Identify the person who sent the money.
      -The sender of the money is left with a counterfoil which serves as evidence that money was sent and it can be used to reclaim the money if it did not reach the payee
      -Money order may be open or crossed. A crossed money order bears two parallel lines drawn diagonally on its face and must be deposited in the bank account of the payee. It cannot be cashed over the counter at the post office.
      -An open money order can be presented for payment at the post office counter.

      Circumstances under which money order is appropriate
      1. Where it is the only means available
      2. Where other means are not acceptable
      3. Where there is need to avoid inconveniences or risks associated with other means
  2. Posta pay
    This is an Electronic Fund Transfer (EFT) service offered by the postal corporation of Kenya, for sending and receiving money instantly from various destinations both locally and internationally.
    -The person sending money fills in a form called ‘send form’ giving the following details;
    • Name, address and telephone number of sender
    • Name, address and telephone number of receiver
    • Pay city, town and location of the receiver
    • Signature of the sender
    • Amount to be sent
      -The sender hands over the form, the amount of money to be sent and the commission to the post office clerk for processing
      -The transfer is done via the internet through a machine that gives a twelvedigit number for the transaction called the ‘Transaction control number’(TCN).The sender then conveys this number, amount sent and pay location to the recipient and instructions to the recipient to visit the named post office for payment. This message is usually conveyed through the quickest means possible such as a telephone call
      -The sender is given a copy of the processed ‘send form’ as proof that money has been sent. The post office retains the original for record purposes. -When the receiver visits the post office, he/she will fill a ‘receiver form’ giving the following details;
      1. The transaction number(i.e. the twelve-digit number)
      2. The expected amount
      3. The name, address and telephone number of the sender
      4. The city town or location of the sender
      5. Signature of the receiver
        The receiver then identifies himself or herself by producing an ID card or passport before receiving the money.

        Advantages of using Posta pay as a means of payment
        1. Accessibility-Posta pay outlets (post offices) are located countrywide to eliminate movement over long distances to get money
        2. Ease of use-Sending or receiving money is easy as one only needs to fill a form which is processed immediately
        3. Speed-the transfer of money is instant (fast)
        4. Security-Confidentiality in the transmission of money is provided and money is only paid to the person intended
        5. Convenience-Posta pay services are offered for long hours during the day and pay locations are conveniently located
        6. Affordability-Posta pay services are relatively affordable as large amounts can be sent at reasonable costs.
  3. Postal orders
    -Postal orders are sold by the post office for the purpose of remitting money -They are available in fixed denominations of sh.5, 10.20,40,60,80,100 and 200
    -On buying a postal order, the sender pays for both the face value of the postal order and a commission charged for the service
    -Postal orders just like money orders are issued with counterfoils that the sender will keep as evidence of remittance in case the person to whom he/she remits the money does not receive it.
    The sender writes the name of the payee on the postal order as a safety measure.
    Payment to the bearer can be made in any post office with postal order facilities
    Postal orders may also be crossed or open (see crossed and ordinary money orders)

Other Means Of Payment

  1. Credit cards
  2. Mobile money transfer services e.g. M-pesa.


  1. Credit cards(plastic money)
    • These are plastic cards that enable a person to purchase goods or services on credit from any business willing to accept the card
    • They are both a means of payment and a term of payment
  2. Mobile money transfer services e.g. M-pesa
    • This is a means of money transfer services provided by mobile phone service providers to their customers (subscribers)
    • It can only be used to transfer money between people subscribed to the same mobile phone network e.g. from one safaricom subscriber to another safaricom subscriber, Airtel to Airtel e.t.c
    • The sender must register for the money transfer service and is issued with a PIN (personal identification number)
    • When money is sent, both the sender and the receiver will receive a message confirming the transfer.
    • A person can send money anytime anywhere so long as he/she has value in his/her m-pesa, pesa pap account.
    • Each mobile service provider has a range of value that can be transferred using this method.
    • A small transaction fee is charges for the transfer i.e. for sending and withdrawing

      Benefits of mobile money transfer services
      1. Confidentiality-The secret PIN protects the value in the customer’s account
      2. Ease of use-The service is easy to use as the agents assists to carry out transaction
      3. Speed-Money transfer is an instant service conveyed to the receiver via the short message service(SMS)
      4. Convenience-The service is convenient to both the sender and the receiver, as they only need to go to the nearest agent (money can be sent/deposited or received anywhere)
      5. Accessibility-The agents e.g. m-pesa agents are located in most parts of towns and also in rural areas. Money can hence be sent and received anywhere and anytime.
      6.  Affordability-The service charges are very low for registered users and very affordable for non-registered users
      7. Security-Relatively secure when the sender uses the correct phone number of the receiver

Importance Of Financial Documents In Record Keeping In Business

  1. Knowing Your Financial Situation - You need to know where your company stands daily, weekly, monthly, quarterly, and annually. Are you making money, is your client base increasing or decreasing, do you have enough money in the bank to meet your obligations, are you meeting the goals you set for your business? Without this knowledge, you have little or no control over your business. You need to know how much inventory you have on hand, how much you need to order when you need to order, the credit terms your suppliers offer, the balance in your bank account to cover your payments for running your business such as rent, utilities, office supplies, inventory, employees’ wages, and payroll taxes. Also, you are likely to be in non-compliance with local, state, and federal regulations without proper controls on your finances.
  2. Meeting Your Tax Obligations
  3. helps to maximize all the expenses you claim and reduce your tax obligations
  4. makes it quicker to prepare your accounts at year-end
  5. gives you the information you need to run your business and help it grow
  6. helps you plan for tax payments
  7. helps identify the strengths and weaknesses in your business
  8. helps manage changes and improvements in your business
  9. will help you plan to meet financial commitments such paying creditors or employees
  10. makes it easier to get a loan or sell your business
  11. avoids over/under tax payments
  12. helps identify if your business is liable for paying VAT to KRA
  13. makes it easier to distribute profits to shareholders as dividends or for partnerships where both profits and losses have to be shared.
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