1-Business documents and books of prime entry Flashcards
Trade discount
A definite amount that is deducted from the list price of the goods for the supplies of some customers, with the intention of encouraging and rewarding customer loyalty.
Bulk discount
Similar to a trade discount in that it is deducted from the list price of the goods and disclosed on the invoice. However, a bulk discount is given by a supplier for sales orders above a certain quantity.
Prompt payment discount
Are offered to customers in order to encourage early payment of invoices. Also known as settlement or cash discounts.
Purchase order
A buyer-generated document that authorises a purchase transaction.
What does a purchase order include?
- Name and address of business placing the order
- Order date
- Sequential order number
- VAT reg no. of business placing the order
- Name and address of business the order is being placed with
- Authorisation signature
Sales order
A seller-generated document that authorises a sale to a customer, issued after the receipt of a purchase order.
What does a sales order include?
- Name and address of business making the sale
- Delivery address and date
- Name and address of customer
- Sales order no.
- Details of goods
- Price of goods
- Authorisation signature
Delivery note
A document accompanying goods despatched to a customer explaining what the delivery contains.
Goods received note
An internal document completed by the purchaser that records the details of goods received and contains similar information to a delivery note.
What does a goods received note include?
- Date of receipt of goods
- Sequential GRN no.
- Supplier
- Details of delivery provider
- Authorisation signature
- Confirmation of satisfactory receipt of goods or of issues with the condition of goods or quantity received
Sales invoice
A document that itemises a transaction between a buyer and seller. It is a request for the buyer to make payment for goods sold or services provided.
VAT (sales tax)
A consumption tax added to a product’s selling price. It represents a tax on the ‘value added’ to the product at each stage of production or supply process.
Output tax
The tax charged on the sale of goods and services.
Input tax
The tax paid on the purchase of goods and services.
What are examples of items that are exempt from VAT?
- Certain land and buildings, where sold, leased or hired
- Insurance
- Post office postal services
- Admission charges to museums, art galleries etc.
- Betting, gaming and lotteries
What are examples of ‘zero rated’ supplies?
- Water and most types of foodstuffs (i.e. Not hot food and not food eaten in a restaurant, as service is also provided which is taxable)
- Books and newspapers
- Drugs and medicines
- Children’s clothing and footwear
What are examples of non-deductible VAT items?
- Motor cars
- Business entertaining
Non-deductible VAT
VAT on any purchases of these items can never be deducted from the amount of tax payable to HMRC.
Net of VAT
A net amount excludes VAT.
Gross of VAT
A gross amount includes VAT.
How do you calculate:
i) the VAT included in the gross amount
ii) the net amount from the gross amount
i) Multiply the gross amount by 20/120
ii) Multiply the gross amount by 100/120
