Business Documents for Credit Transactions (Cambridge (CIE) O Level Accounting)

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 purchases invoice

  • The supplier will keep a copy

    • They might refer to it as a sales invoice

• An entry is made in the books of prime entry when an invoice is issued or received for goods or services

  • The customer enters the value in the purchases journal

  • The supplier enters the value in the sales journal

• 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 

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 prime 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 prime entry when a credit note is issued or received

  • The customer enters the value in the purchases returns journal

  • The supplier enters the value in the sales returns  journal

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

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

• No entries are recorded in the books of prime 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