Business Documents for Credit Transactions (Cambridge International IGCSE Accounting)

Invoices

What is an invoice?

• An invoice is used as a record of a credit sale or credit purchase

• The supplier issues an invoice to the credit customer

  • The customer might refer to this as a purchases invoice

  • The supplier will keep a copy

    • They might refer to it as a sales invoice

• An entry is made in the books of prime entry when an invoice is issued or received for goods or services

  • The customer enters the value in the purchases journal
  • The supplier enters the value in the sales journal

• If the invoice is for a non-current asset then the book of original entry is the journal

What information is contained in an invoice?

• The date of the transaction

• The details of the supplier

  • Name and address

• The details of the customer

  • Name and address

• 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

• 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

Exam Hint You might be required to complete an invoice. This will usually involve the calculation of percentages of an amount.

Worked Example Complete the invoice below.

From: T Payable 123 Supplier Street Newcastle, NE1 2BC Bill to: T Receivable 321 Customer Close London, EC1 2XY	Invoice Invoice Number: 3141576 **Invoice Date: 21/3/24
QTY	Description	Unit Price $	Amount **$
50	Accounting flashcards	4	…
…	Mark schemes	20	…
Subtotal	500
5% trade discount	…
Total	…

Answer:

• Amount for accounting flashcards

50 × $4 = $200

• Amount for mark schemes

$500 - $200 = $300

• Quantity for mark schemes

$300 ÷ $20 = 15

• Discount

5% × $500 = $25

• Total

$500 - $25 = $475

From: T Payable 123 Supplier Street Newcastle, NE1 2BC Bill to: T Receivable 321 Customer Close London, EC1 2XY	Invoice Invoice Number: 314156 **Invoice Date: 14/3/24
QTY	Description	Unit Price $	Amount **$
50	Accounting Flashcards	4	Final answer: 200
Final answer: 15	Mark schemes	20	Final answer: 300
Subtotal	500
5% trade discount	Final answer: 25
Total	Final answer: 475

Debit notes & credit notes

What is a debit note?

• A credit customer issues a debit note to a supplier to request a reduction in the balance of an invoice

• The customer could ask for a reduction if

  • The goods are damaged or faulty
  • They were sent the wrong items
  • Goods are missing from their order

• No entries are recorded in the books of prime entry at this stage

  • This is because the supplier has not yet authorised the reduction
  • This is done when the customer receives a credit note from the supplier

What information is contained in a debit note?

• The date of the request

• 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 when the balance on an invoice is reduced

  • The customer uses the credit note received to record the return

    • It will be matched and filed with the corresponding invoice and debit note

  • The supplier keeps a copy of the credit note issued to record the return

    • It will be matched and filed with the corresponding invoice

• An entry is made in the books of prime entry when a credit note is issued or received

  • The customer enters the value in the purchases returns journal
  • The supplier enters the value in the sales returns journal

What information is contained in a credit note?

• The date of the reduction

• The details of the supplier

  • Name and address

• The details of the customer

  • Name and address

• The reason for the reduction

  • Details of the goods that are being returned
  • Details of the goods that were missing

• The total reduction that is being given

Worked Example Samir sells pet food. Hashim is a credit customer. Three events take place during a week between Samir and Hashim. Complete the table to identify the business document that is issued and the name of the person who issues the document.

Event	Business document	Person who issues the document
Hashim buys pet food from Samir on credit
Hashim tells Samir that he wants to return some pet food
Samir receives the returned goods and reduces the balance on Hashim’s account

Answer:

Event	Business document	Person who issues the document
Hashim buys pet food from Samir on credit	Final answer: Invoice	Final answer: Samir
Hashim tells Samir that he wants to return some pet food	Final answer: Debit note	Final answer: Hashim
Samir receives the returned goods and reduces the balance on Hashim’s account	Final answer: Credit note	Final answer: Samir

Statements of account

What is a statement of account?

• A statement of account is used to show all transactions between a credit customer and a supplier within a given time frame

• A statement of account is issued on a regular basis by the supplier

• No entries are recorded in the books of prime entry when a statement of account is issued or received

  • This is because no new transactions have taken place
  • The customer can check the balance on the statement with the balance in their purchases ledger account

• There is usually a balance column which shows the balance after each transaction

• The statement of account is written from the point of view of the supplier

  • Transactions which increase the customer’s balance will be labelled as a debit
  • Transactions which decrease the customer’s balance will be labelled as a credit

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

  • These will correspond to invoices that were issued

• The date and amount of any returns by the customer

  • These will correspond to credit notes that were issued

• Payments made by the customer

• Cash discounts received by the customer

• The closing balance

Worked Example An incomplete statement of account is shown below for the month of April 2024.

From: T Payable 123 Supplier Street Newcastle, NE1 2BC To: T Receivable 321 Customer Close London, EC1 2XY	Statement of Account Statement Number: 123456 **Statement Date: 30/4/24
Date	Reference	Debit $	Credit **$	Balance $
2024 Apr 1	Opening balance			450
Apr 15	Payment		200	250
Apr 15	Discount		20	230
Apr 23	Goods purchased	300		…
Apr 28	Goods returned		180	…

Complete the table below to show the business document that T Payable would use as a record of each transaction and calculate the balance immediately after the transaction took place.

Transaction	Business document	Balance
Apr 23 Goods purchased
Apr 28 Goods returned

Answer:

Transaction	Business document	Balance
Apr 23 Goods purchased	Final answer: Sales invoice	230 + 300 = Final answer: 530
Apr 28 Goods returned	Final answer: Credit note issued	530 - 180 = Final answer: 350