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
Purchase invoice
An invoice is a document that itemises a transaction between a buyer and a seller. We now consider the situation from the customer perspective, so what we previously regarded as a sales invoice, is a purchase invoice to the customer.
E & OE
Errors & omissions excepted. It is included on an invoice. The seller is claiming the right to correct any genuine errors on the invoice (e.g. Prices) at a later date.
Carriage paid
Included on an invoice. The invoice value includes delivery of the goods to the customer’s premises.
Ex works
Included on an invoice. Prices quoted do not include delivery to the customer’s premises. The customer must organise & pay for the delivery of the goods.
Cash on delivery
The customer is expected to pay for the goods when they are delivered.
Credit note
A document issued by a supplier to a customer cancelling part or all of a sales invoice.
When is a credit note typically issued?
- When a customer has returned faulty or damaged goods
- When a customer has returned undamaged goods by agreement with the supplier for a refund
- To make a refund for short deliveries
- To settle a dispute with a customer
- To adjust an account after taking advantage of a prompt payment discount
Goods returned note
Document sent to the supplier by the customer detailing the goods returned & reasons for the return.
What does a credit note include?
- Name & address of issuer of credit note
- Sequential credit note no.
- VAT reg no. of supplier
- Date of credit note
- Returns inwards note reference
- Customers account code
- Rate of VAT on goods returned
- Goods returned total
- VAT charged
- Total amount of credit
Code
A system of numbers, letters & symbols designed to be applied to a set of items, to give a brief accurate reference, which helps entry to the accounting records, collation & analysis.
Ledger code
A unique reference given to different types of income, expenses, assets, & liabilities. It may also be referred to as a general ledger or nominal code.
Customer account code
A unique reference given to each individual customer of an organisation.
Supplier account code
A unique reference given to each individual supplier of an organisation.
Product code
A unique reference given to each type of product of an organisation.
What are the 5 types of codes?
- Sequence codes
- Block codes
- Significant digit codes
- Faceted codes
- Decimal codes (hierarchical codes)
Sequence codes
Allocate a number, or a letter, to items in a Simple list
E.g. Code Name
01 ADAMS, Joan
02 AITKEN, James
03 ALCOCK, Freda
Block codes
These allocate bands of numbers to particular categories.
E.g. Consider a manufacturer who produces several types of tables, chairs & entertainment units
Product type Block code
Tables 01–19
Chairs 20–29
Entertainment units 30–39
Significant digit codes
These are a particular type of group classification code where individual digits & letters are used to represent features of the coded item.
E.g. Code Item
TT67015B Tube tyre 670 x 15 Blackwall
LT67015W Tubeless tyre 670 x 15 Whitewall
Faceted codes
Are another type of group classification code by which the digits of the code are divided into facets of several digits & each facet represents some attribute of the item being coded. These codes are purely numerical.
E.g. Facet 1 = Type of weave 1 = Cord
(1 digit) 2 = Twist
3 = Short tufted
Facet 2 = Material 1 = All wool
(1digit) 2 = 80% wool, 20% nylon
3 = 50% wool, 50% nylon
Facet 3 = colour 01 = Off white
(2 digits) 02 = Bright yellow
03 = Scarlet
A code of 2/3/01 represents a twist carpet in 50% wool, 50% nylon & off white.
Decimal codes
These are a form of a group classification code. The most obvious example of a decimal code is the Universal Decimal Code (UDC). UDC divides all human knowledge into more & more detailed categories.
E.g. Code Item
3 Social science
37 Education
372 Elementary
372.2 Kindergarten
372.21 Methods
372.215 Songs & games
Sales day book(SDB)
A list of the sales invoices that are to be processed for a given period.
The sales returns day book (SRDB)
A list of the credit notes that are to be processed for a given period.
The purchase day book
A list of the purchases invoices that are to be processed for a given period.
The purchases returns day book
A list of the credit notes that have been received from suppliers for a given period.
The cash book
A record of cash receipts & payments that can form part of the double-entry bookkeeping system as well as being a book of prime entry.
Analysed cash book
Is used to record a businesses income and expenses. Debit is money received by the business. Credit is money paid out by the business.
Discounts allowed day book
Used to record the discounts that have not been deducted at the point of the invoice being recorded in the sales day book but instead were offered on a conditional basis i.e. Prompt payment discounts
Discounts received day book
The discounts received day book is used to record the discounts that have not been deducted at the point of the invoice being recorded in the purchases day book but instead were offered on a conditional basis.
What is the purpose of the discounts allowed day book?
To record the credit notes that must be issued due to the customer taking advantage of a prompt payment discount.
What is the purpose of the discounts received day book?
To record the credit notes that have been received due to the business taking advantage of a prompt payment discount.
Petty cash
The small amount of cash that most businesses hold in order to make small cash payments.
Petty cash book
A petty cash book is one in which all petty or small payments made through the petty cash fund are recorded systematically.
