Business Documents for Credit Transactions (Edexcel IGCSE Accounting)
Revision Note
Written by: Dan Finlay
Reviewed by: Lucy Kirkham
Purchase Orders
What is a purchase order?
A purchase order is completed by the customer of a business
The customer states the goods they would like to buy
Information is not entered into the books of original entry at this stage
This is because a sale or purchase has not yet been made
An invoice is created once the purchase order has been processed by the supplier
The customer can check the goods stated on the invoice match the goods on the purchase order
Invoices
What is an invoice?
An invoice is used as a record of a credit sale or credit purchase
The supplier issues an invoice to the credit customer
The customer might refer to this as a purchase invoice
The supplier will keep a copy
They might refer to it as a sales invoice
An entry is made in the books of original entry when an invoice is issued or received for goods or services
The customer enters the value in the purchases day book
The supplier enters the value in the sales day book
If the invoice is for a non-current asset then the book of original entry is the journal
What information is contained in an invoice?
The date of the transaction
The details of the supplier
Name and address
The details of the customer
Name and address
The details of the goods or services
The quantity
The price of each item
Trade discount
This is deducted before the total amount is stated
The total amount owed
Terms for eligibility of cash discount
Date payment is required by
It might also state any interest or charges that will be applied after this date
Examiner Tips and Tricks
You might be required to complete an invoice. This will usually involve the calculation of percentages of an amount.
Worked Example
Complete the invoice below.
From: T Payable 123 Supplier Street Newcastle, NE1 2BC Bill to: T Receivable 321 Customer Close London, EC1 2XY | Invoice Invoice Number: 3141576 Invoice Date: 21/3/24 | ||
---|---|---|---|
QTY | Description | Unit Price | Amount |
50 | Accounting flashcards | 4 | … |
… | Mark schemes | 20 | … |
Subtotal | 500 | ||
5% trade discount | … | ||
Total | … |
Answer
Amount for accounting flashcards
50 ✕ $4 = $200
Amount for mark schemes
$500 - $200 = $300
Quantity for mark schemes
$300 ÷ $20 = 15
Discount
5% ✕ $500 = $25
Total
$500 - $25 = $475
From: T Payable 123 Supplier Street Newcastle, NE1 2BC Bill to: T Receivable 321 Customer Close London, EC1 2XY | Invoice Invoice Number: 314156 Invoice Date: 14/3/24 | ||
---|---|---|---|
QTY | Description | Unit Price | Amount |
50 | Accounting Flashcards | 4 | 200 |
15 | Mark schemes | 20 | 300 |
Subtotal | 500 | ||
5% trade discount | 25 | ||
Total | 475 |
Debit Notes & Credit Notes
What is a debit note?
A credit customer issues a debit note to a supplier to request a reduction in the balance of an invoice
The customer could ask for a reduction if
The goods are damaged or faulty
They were sent the wrong items
Goods are missing from their order
No entries are recorded in the books of original entry at this stage
This is because the supplier has not yet authorised the reduction
This is done when the customer receives a credit note from the supplier
What information is contained in a debit note?
The date of the request
The details of the supplier
Name and address
The details of the customer
Name and address
The reason for the request for a reduction
Details of the goods that are being returned
Details of the goods that were missing
The total reduction that is being requested
What is a credit note?
A supplier issues a credit note to a credit customer when the balance on an invoice is reduced
The customer uses the credit note received to record the return
It will be matched and filed with the corresponding invoice and debit note
The supplier keeps a copy of the credit note issued to record the return
It will be matched and filed with the corresponding invoice
An entry is made in the books of original entry when a credit note is issued or received
The customer enters the value in the purchases returns day book
The supplier enters the value in the sales returns day book
What information is contained in a credit note?
The date of the reduction
The details of the supplier
Name and address
The details of the customer
Name and address
The reason for the reduction
Details of the goods that are being returned
Details of the goods that were missing
The total reduction that is being given
Worked Example
Samir sells pet food. Hashim is a credit customer. Three events take place during a week between Samir and Hashim. Complete the table to identify the source document that is issued and the name of the person who issues the document.
Event | Source document | Person who issues the document |
Hashim requests to buy pet food from Samir on credit | ||
Hashim buys pet food from Samir on credit | ||
Hashim tells Samir that he wants to return some pet food | ||
Samir receives the returned goods and reduces the balance on Hashim’s account |
Answer
Event | Source document | Person who issues the document |
Hashim requests to buy pet food from Samir on credit | Purchase order | Hashim |
Hashim buys pet food from Samir on credit | Invoice | Samir |
Hashim tells Samir that he wants to return some pet food | Debit note | Hashim |
Samir receives the returned goods and reduces the balance on Hashim’s account | Credit note | Samir |
Remittance Advice
What is remittance advice?
Remittance advice is a document prepared by the customer which notifies the supplier that a payment has been made
Remittance advice is a source document for payments of goods that were purchased on credit
An entry is made in the books of original entry when remittance advice is sent or received
The customer and supplier enter the value in the cash book
Statements of Account
What is a statement of account?
A statement of account is used to show all transactions between a credit customer and a supplier within a given time frame
A statement of account is issued on a regular basis by the supplier
Usually each month
No entries are recorded in the books of original entry when a statement of account is issued or received
This is because no new transactions have taken place
The customer can check the balance on the statement with the balance in their purchases ledger account
There is usually a balance column which shows the balance after each transaction
The statement of account is written from the point of view of the supplier
Transactions which increase the customer’s balance will be labelled as a debit
Transactions which decrease the customer’s balance will be labelled as a credit
What information is contained in a statement of account?
The date that the statement is issued
The details of the supplier
Name and address
The details of the customer
Name and address
The opening balance
The date and amount of any purchases by the customer
These will correspond to invoices that were issued
The date and amount of any returns by the customer
These will correspond to credit notes that were issued
Payments made by the customer
Cash discounts received by the customer
The closing balance
Worked Example
An incomplete statement of account is shown below for the month of April 2024.
From: T Payable 123 Supplier Street Newcastle, NE1 2BC To: T Receivable 321 Customer Close London, EC1 2XY | Statement of Account Statement Number: 123456 Statement Date: 30/4/24 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Date | Reference | Debit $ | Credit $ | Balance $ | |||||||||||||||
2024 Apr 1 | Opening balance | 450 | |||||||||||||||||
Apr 15 | Payment | 200 | 250 | ||||||||||||||||
Apr 15 | Discount | 20 | 230 | ||||||||||||||||
Apr 23 | Goods purchased | 300 | … | ||||||||||||||||
Apr 28 | Goods returned | 180 | … |
Complete the table below to show the source document that T Receivable would use as a record of each transaction and calculate the balance immediately after the transaction took place.
Transaction | Source document | Balance |
Apr 23 Goods purchased | ||
Apr 28 Goods returned |
Answer
Transaction | Source document | Balance |
Apr 23 Goods purchased | Sales invoice | 230 + 300 530 |
Apr 28 Goods returned | Credit note issued | 530 - 180 350 |
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