Chapter 2: Financial Documents for sales Flashcards
When selling goods and services on credit, a business will deal with a number of documents. The most important are:
- Purchase Order
- Delivery note
- Invoice
- Credit Note
- Statement
How does the seller request payment?
By means of an invoice
Who prepares the credit note?
The credit note is prepared by the seller.
How does the seller remind the buyer of payment due?
By regular statement of account (normally monthly)
Who is the credit note sent to?
The credit note is sent to the buyer.
Types of discounts available?
Trade
Bulk
(Deducted by seller from invoice total)
Settlement
(Deducted by buyer)
3 reasons of refund by a credit note?
- Damaged Goods. 2. Shortages 3. Buyer overcharged
How will a refund due to the buyer be acknowledged and documented?
By means of a credit note.
Credit note: Is the invoice number of the original consignment quoted?
The invoice number of the original consignment is quoted.
Coding: What types are documents ususally coded in?
Numeric / Alpha-numeric
Credit note: Where is the reason for issue quoted?
The reason for the issue of the credit note is stated at the bottom of the credit note
Why are documents ususally coded?
For reference purposes.
Credit note: Eg. Of reason for issue?
E.g. ‘Damaged’ notes
What do financial documents need to be done to, before sending out?
Authorised.
Credit note details: What are the details exactly the same as?
The details are otherwise exactly the same as on an invoice
How soon should any document discrepancies be dealt with?
Promptly.
Statement: Will a seller expect immediate payment for each individual invoice?
A seller will not normally expect a buyer to pay each individual invoice as soon as it is received.
How long are documents usually retained for?
At least 6 years.
Statement: What happens if the seller send invoices for every order?
The buyer could have to make multiple payments during the month.
Price Quotation?
Seller may be asked to provide.
Statement: What is sent to the seller at the month end?
A STATEMENT of account is sent from the buyer to the seller @ end of the month
Purchase order?
Seller receives from the buyer.
Statement: What does it show?
The statement shows what is owed B -> S
Delivery note?
Goes with goods from buyer to seller
Statement: How is it prepared?
This statement, which can by typed out / printed by the seller’s computer accounting program.
Invoice
Lists the goods & tells the buyer what is owed.
Returns Note?
Sent with goods being returned
Credit note
Sent to buyer to remind what is owed to the seller.
Price quotation?
Buyer finds out price via:
- Catalogue
- Written enquiry
- Telephone
- Website
When does the seller usually provide written quotations?
- If requested to.
2. With higher value orders.
When will a purchase order be made?
Once buyer has accepted the quoted price.
How is the order processed?
Manually / On a computer accounting program.
What is the reference number an example of in accounting?
Coding
What is the reference number useful for?
Filing & Quoting on later documents
Where is the reference # stated?
Product code column
What is it a further example of?
Alpha-Numeric Coding
Who is the purchase order signed & dated by?
The person in charge of purchasing
What is unlikely to happen without the authorisation?
- Supplier is unlikely to supply the goods
- Order will probably be returned
When is the delivery note despatched?
It is despatched with the goods when the order is ready.
Invoice: What is it?
Trading Document
States how much is owed by the buyer of goods/services.
What addresses does the invoice show?
-Seller of goods
-Where invoice should be sent
-Where goods should be sent
(If different from invoice address)
Why is the invoice date important?
- Payment date is calculated from it
2. Transaction date is used for VAT purposes.
Net value?
The amount due to seller
After deduction of trade / bulk discount
Before VAT is added on.
Goods total?
The amount due to seller
Is total of net column
When is VAT calculated?
After deduction of any cash discount.
What is VAT added to produce?
VAT is added to produce the invoice final total.
How is total calculated?
VAT + Goods total.
It is the amount due to the seller.
Carriage paid?
The price of the goods includes delivery
E&OE
Errors & Omissions excepted.
If a mistake results in an incorrect final price
Supplier has right to rectify the mistake & demand the correct amount.
Credit note?
Refund Document
Reduces the amount owed by the buyer
3 egs of refund by credit note?
- Damaged Goods / lost in transit / faulty.
- Not all goods have been sent (shortages)
- Unit price on invoice is incorrect & buyer overcharged.
What 3 details are on a credit note?
- The invoice no. of the original consignment is quoted.
- Reason for credit note issue is stated at the bottom.
- Details are otherwise exactly the same as on an invoice.
Why is a statement of account sent from supplier to buyer at the end of the month?
To prevent the buyer from making multiple payments during the month.
And make one payment at the end of the month.
Statement:
Balances b/f? Where does it appear?
Balances Brought Forward
These appear in the debit column with the wording “Balances b/f” in the details column.
Statement details?
Credit Column
Balances owing at the beginning of the month.
Payments received from the buyer
(Credit Column)
Refunds made on credit notes including VAT
(Credit Column)
Statement details?
Debit Column
Invoices issued for goods supplied
(Full amount due incl. VAT)
(DEBIT Column)
Staement Details?
Box at Bottom
Running Balance
Final Net Total of all the items.
Settlement Discount is also known as?
Cash Discount
Trade discount: When is it normally issued?
It is common practice for suppliers to give businesses that normally order from them a trade discount is normally given.
Trade discount: What is it?
A % reduction in the invoiced amount
Trade discount: Why is it called that?
It applies to ‘businesses in the TRADE’ rather than the general public.
Bulk Discount: When is it issued?
Bulk discount is given to buyers who purchase in large quantities.
Invoice calculations
- Total Price before discount
- Trade discount
- Total Price - Trade discount
- VAT
- Total Invoice price.
Settlement discount?
A further discount given when payment is made early
Eg. 2.5% settlement discount for payment within 7 days
What is a credit note?
A credit note is a refund document
That reduces the amount owed by the buyer.
Settlement discount?
A further discount given when payment is made early
Eg. 2.5% settlement discount for payment within 7 days
What is a credit note?
A credit note is a refund document
That reduces the amount owed by the buyer.
What type of FD is used when goods sold on credit.
To be sent with goods (S -> B) listing goods sent.
Delivery Note
What type of FD is used when goods sold on credit.
To order goods in the first place
Purchase order
Explain the term TRADE DISCOUNT
Trade Discount (TD) =
% Allowance
Given to customers
Who regularly deal with seller.
Coding: Egs found on FDs?
- Purchase Order No.
- Delivery Note No.
- Invoice No.
-Inventory Code
-Account No.
Credit Note No.
Coding: Why is it important?
Cooding is important for accurate cross-referencing & for efficient filing.
