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Business documents
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Every transaction starts with a document. These documents are the evidence used to write up the books.
Buying and selling on credit
Purchase order: sent by the buyer to the supplier to order goods.
Invoice: sent by the seller to the buyer showing goods supplied and the amount owed. To the seller it is a sales invoice; to the buyer it is a purchase invoice.
Credit note: sent by the seller to reduce the amount owed, for example when goods are returned or overcharged.
Invoice: sent by the seller to the buyer showing goods supplied and the amount owed. To the seller it is a sales invoice; to the buyer it is a purchase invoice.
Credit note: sent by the seller to reduce the amount owed, for example when goods are returned or overcharged.
Paying and receiving
Statement of account: sent by the seller, usually monthly, listing invoices, credit notes and payments, and the balance owed.
Remittance advice: sent by the buyer with a payment, showing which invoices are being paid.
Cash receipt: proof that cash has been received.
Petty cash voucher: completed to claim small cash payments from petty cash.
Remittance advice: sent by the buyer with a payment, showing which invoices are being paid.
Cash receipt: proof that cash has been received.
Petty cash voucher: completed to claim small cash payments from petty cash.
Discounts on invoices
Trade discount: a reduction from the list price given to trade customers. It is deducted on the invoice and not recorded in the books.
Cash discount: offered for paying quickly, such as 5% if paid within 14 days. It is only recorded if the customer pays in time.
Cash discount: offered for paying quickly, such as 5% if paid within 14 days. It is only recorded if the customer pays in time.
10 chairs at a list price of £50 each, less 20% trade discount. What is the invoice total?
- List price = 10 × 50 = £500
- Trade discount = 20% of 500 = £100
- 500 − 100
Answer: £400
Purchase order, invoice, credit note, statement of account, remittance advice, cash receipt and petty cash voucher. Trade discount is deducted on the invoice and not recorded. Cash discount is for prompt payment.
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