Selling Goods and Services

Question 1

what is a cash sale?

Answer 1

goods or services paid for immediately

Question 2

how can a cash sale be made? (list five)

Answer 2

cheque
debit card
bank transfer
coins and notes
even credit card

Question 3

how can a credit card be a form of cash sale?

Answer 3

because the bank pays immediately but the individual pays the bank at a later date

Question 4

what three prices must be recorded in the business books for cash sales?

Answer 4

net price
VAT
gross price

Question 5

what is a credit sale?

Answer 5

when goods and services are bought but payment is made later by the customer

Question 6

why do businesses allow credit sales to other businesses?

Answer 6

this encourages the customer to make more purchases and then pay later as it helps with the individuals cash flow, this also helps the business if they are selling items on credit which allows them to also pay their supplier with better cash flow

Question 7

how can a business ensure payment from credit customers?

Answer 7

by running a credit check to ensure the customer and agreeing on a payment which outlines how much a customer can owe at a time and when they should pay it off

Question 8

which documents are involved in making in a sale? (list three)

Answer 8

customers need to be made aware of the price (catalogue/advertisement etc)
the same price must be listed on the invoice
some businesses may give a quotation or estimation regarding the service

Question 9

what is a quotation?

Answer 9

this price cannot be changed once the customer has accepted it, there may be additional factors which may change the price

Question 10

what is an estimation?

Answer 10

a rough idea based on guesswork of the job, this amount can be negotiable depending on circumstances

Question 11

what is a purchase order?

Answer 11

a legal document once the order has been accepted by the supplier this creates and contract between both seller and buyer
larger businesses will need to issue purchase orders (customer orders) unlike smaller businesses with all the information surrounding the order

Question 12

what does a purchase order include? (list 7) QUIPDAI

Answer 12

individual reference number
product code if available
quantity
description of the goods
unit price and total price (not necessary but useful for accuracy)
authorising signature and date
invoice and deliver address

Question 13

what is a sales order, and what does it contribute towards in the business?

Answer 13

this can be raised from a purchase order by the seller which lists what the customer has bought, this can be kept to help with stock and when to purchase

Question 14

what is an advice note?

Answer 14

this confirms that the seller has accepted the order and explains when the goods will be delivered if the delivery is not immediate or if they are on their way

Question 15

what is a delivery note?

Answer 15

sent with the deliveries to the buyer who then determines if the goods are satisfactory and then will sign two forms

Question 16

why are there two forms signed by the buyer when the items are delivered?

Answer 16

one retained by the buyer and passed onto the account and the other given back to the supplier as proof of delivery

Question 17

what is an invoice?

Answer 17

the document that itemises the goods sent or services specifying the price, it is a legal document and can be used for recording tax so certain items must be specified

Question 18

what is the threshold a company must reach which requires them to pay tax?

Answer 18

£85,000

Question 19

what needs to be listed on the invoice? (15)

Answer 19

name and address of supplier
address of where the invoice is sent
address of where the goods are sent (if different)
invoice number
VAT registration (if the business is registered for VAT)
customer reference number (if they have one)
original purchase order number which helps link the invoice to the purchase
date of invoice (esp important to credit customers)
product code (if there is one)
precise description of goods and quantity
price for unit and total
discounts (if offered)
rate of VAT
total for the invoice plus the VAT charged

Question 20

what are the three types of discounts?

Answer 20

bulk discount
trade discount
prompt payment discount

Question 21

how are discounts calculated?

Answer 21

the percentage of the discount is taken off the net price and the VAT is taken off leaving the gross price

Question 22

what is PPD?

Answer 22

prompt payment discount which encourages buyers to pay faster for a discount

Question 23

what are the rules surrounding PPD?

Answer 23

a set percentage which can be applied within a set amount of time i.e. 2% if paid within 7 days

Question 24

what is the main problem with PPD

Answer 24

that the supplier does not know if the discount has been taken unless they have received payment or until the time limit has passed

Question 25

how can the prompt payment discount be given

Answer 25

once the invoice has been raised the supplier must record this as well as the discount applied, this can be done two ways, issue a credit note with the discounted amount + VAT or the original invoice must contain clear wording with how much the discount is and when it should be paid by and a statement that the customer can claim back the VAT they paid. If the customer does take the discount the supplier will record the amount paid, the amount of the discount taken, and they must also adjust the VAT

Question 26

how should PPD be calculated off the net amount

Answer 26

a prompt payment discount is on top of any bulk or trade discount, so a bulk/trade discount will be shown as a reduction on the invoice and the PPD will be taken off the reduced amount

Question 27

what should be done with faulty goods

Answer 27

they should be returned to the seller in a goods returned note and then the seller will will issue a credit note (refund document)

Question 28

why is a credit note important for records

Answer 28

to show that the original invoice amount does not need to be paid in full

Question 28

why should you retain the original invoice, even if the credit note means there is no use for it (list two reasons)

Answer 28

to show that the original invoice amount does not need to be paid in full, and second both companies would have recorded this invoice so crossing out an entry is not an option

Question 29

how can we calculate the amount to be taken off from the original amount due to faulty goods

Answer 29

if two items were to be returned then you would - calculate the total price before trade discount 2 x 75 (price/item) = 150 - calculate the trade discount 150 x 10%= 15 - calculate net price 150 - 15 = 135 - calculate VAT 135 x 20% = 27 - calculate credit note total 135 + 27 = 162

Question 30

what will a credit note include (list four)

Answer 30

- number of original invoice - the reason for return - unique number, cn's have their own sequence of numbers to not have the same details like an invoice.

Question 31

statement of account

Answer 31

for a customer it shows all the transactions between customer and supplier, all the invoices, credit notes, discounts and and payments received all shown in one document, this can also be used as a payment

Question 32

the statement may start with b/f, what does this mean

Answer 32

for customers that pay their invoices after a period of time so the amount will be 'brought forward from the previous month, new invoices will be added to this as well as any discounts

Question 33

what is the difference between credits and debits (for the customer)

Answer 33

any amounts that decrease what is owed are credits (on the right), and any amounts that increase the amount owed are called debits (on the left)

Question 34

which discounts are listed on statements

Answer 34

only PPD's they are stated once they have been taken and not when they are offered as the customer may not pay within the time allowed to qualify for the discount

Question 35

which documents are included to track sales

Answer 35

- quotes and estimates - purchase orders - delivery notes - invoices - return notes - credit notes - customer statements