Business Documents for Credit Transactions | Accounting for GCSE/IGCSE - Year 11 PDF Download

What is an invoice?

• An invoice serves as a documentation of a credit sale or purchase transaction.
• The supplier issues the invoice to the credit customer, who may recognize it as a purchases invoice. A copy is retained by the supplier, often referred to as a sales invoice.
• Accounting entries are recorded in the books of prime entry upon issuance or receipt of an invoice:
  • The customer records the value in the purchases journal.
  • The supplier records the value in the sales journal.

What information is contained in an invoice?

• Name and address
• The details of the customer Name and address

Details of Goods or Services

• 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

Financial Information

• 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

Example of an Invoice

Debit Notes & Credit Notes

What is a debit note?

• A debit note is a document issued by a customer to a supplier to request a decrease in the invoice balance.
• Customers typically send debit notes in scenarios such as:
  • The goods received are damaged or faulty.
  • Incorrect items were shipped to the customer.
  • Items are missing from the received order.
• During the initial stages, these adjustments are not recorded in the primary accounting records because the supplier has yet to approve them.
• Authorization for these adjustments is granted when the supplier issues a credit note to the customer.
• The goods may be damaged or faulty, indicating a defect or impairment in their quality or condition.
• Customers might receive incorrect items, implying that the products sent do not match what was ordered.
• There could be instances where items are missing from a customer's order, leading to incomplete deliveries.
• When no entries are documented in the books of prime entry initially, it is typically due to the supplier not yet approving the deduction.
• This action is typically taken when a customer receives a credit note from the supplier as acknowledgment of the reduction.

What information is contained in a debit note?

• 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 to reduce the balance on an invoice.
• The customer utilizes the credit note to document returns, aligning it with the respective invoice and debit note.
• The supplier retains a copy of the credit note for recording returns and matches it with the corresponding invoice.
• Entries are made in the books of prime entry when issuing or receiving a credit note.
  • Customers record the value of returned purchases in the purchases returns journal.
  • Conversely, suppliers record the value of returned sales in the sales returns journal.

Details in a Credit Note

• The credit note includes:
  • The date of the reduction.
  • Supplier's details like name and address.
  • Customer's details such as name and address.
  • Reason for the reduction.
  • Details of returned goods and any missing items.
  • Total amount of reduction provided.
• Including these details ensures clarity and transparency in the credit note process.

What is a statement of account?

• A statement of account serves to display all transactions occurring between a credit customer and a supplier within a specified timeframe.
• Issued periodically by the supplier, this document does not prompt any new entries in the primary records, as it reflects past transactions only.
• Customers utilize the statement to cross-reference their balance with the one in their purchases ledger account.
• Typically, a balance column is included, demonstrating the balance after each transaction.
• The statement is crafted from the supplier's viewpoint, denoting transactions that either increase (labeled as 'debit') or decrease (labeled as 'credit') the customer's balance.

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 (corresponding to invoices)
• The date and amount of any returns by the customer (corresponding to credit notes)
• Payments made by the customer
• Cash discounts received by the customer
• The closing balance