SALES AND SALES RECORDS CHAPTERS
You need to understand the administrative procedures that must be carried out before an invoice and credit note are raised and issued to the customer, along with how to prepare them. Although an integrated accounting system will generate invoices and credit notes as transactions occur, it is important to understand at what point they are raised and their content.
A business should not send out an invoice to a customer until the appropriate time. Usually, this is after the goods have been delivered or the service has been provided. A person in authority should confirm that the goods or services have been provided, and that an invoice should now be prepared and issued.
The person who gives authorisation for an invoice to be prepared is likely to be an office manager, but arrangements will differ between different businesses. The purpose of authorising an invoice, however, is to avoid issuing invoices to a customer for goods or services that have not been delivered.
Credit notes, which reduce the amount owing by the customer, should only be issued when necessary, for example after confirming that goods were damaged in transit to the customer, or the wrong items were delivered, and should be properly authorised.
When authorisation has been given for a sales invoice to be raised, the task will usually be the responsibility of an individual in the accounts department. This could be prepared manually or, as is increasingly the case, could be produced by a computerised system. Much of the information required would come from standing data files of product and price lists, along with the contact name and address of the customer.
The information for preparing the invoice could come from several different sources, such as:
In many instances businesses deal with the same credit customers (or account customers) regularly over a period of time. If so, it would be usual to maintain a file of customer details. The customer details needed to produce sales invoice are likely to be:
If goods are supplied to a new customer then there will be no existing customer details and the ordering process should ensure that the relevant invoicing details for the customer are recorded when the order is placed.
The information requirements are:
The quantity, description, code and price of the goods may be available from the customer's purchase order. However, if the business is unable to fulfil all of the customer's quantity requirements then the quantity to be invoiced may have to be identified from the despatch note or delivery note, so that the customer is invoiced only for goods delivered.
The code and price of the goods may be available from the customer's purchase order or a sales order form. Alternatively it may be necessary to look them up from the current price list.
If an invoice is to be raised for the provision of a service rather than the supply of goods then the information required is likely to come from different sources. The supply of services will usually involve the customer being charged with the time of the person supplying the service.
The actual time spent on the customer's job can normally be obtained from timesheets or job sheets and the hourly charge-out rate of the employee from the appropriate accounting records.
In many service situations, such as car repairs or machinery repairs, spare parts will also form part of the cost to the customer and therefore part of the invoice. The retail price of such parts will normally be taken from a current price list.
When an invoice has been prepared manually, it should be checked against the original documents (the purchase order, price list, and so on) to make sure that there are no errors in the invoice details. In addition, a check should be made that all the required information has been included. If an invoice has been prepared by a computerised system, it should still be checked to ensure that the details are correct.
Although procedures vary between businesses, the responsibility for checking invoices may be given to the accounts supervisor. After the invoice has been checked and approved, it should be issued to the customer.
Given below are three customer purchase orders, an extract from the current price list and the relevant customer details. The most recent sales invoice number was 33825.
| Name | Accounting code | Address | Discounts agreed |
|---|---|---|---|
| DU Enterprises | D46 | Finch Estate | Trade: 5% Settlement: Net 30 days |
| PJ Freeman | F12 | New Street Plymouth Devon PL4 7ZU | Trade: 3% for payment within 10 days Settlement: net 30 days |
| Tab Design | T03 | 22 Fairmount Rd Tavistock Devon TA4 8BB | Trade: 10% Settlement: 4% for payment within 10 days, net 30 days |
PJ Freeman is expected to take advantage of the early settlement discount offered.
Tab Design is not expected to take up the early settlement discount offered.
Today's date is 22 June 20X4.
| Code | Description | Price $ |
|---|---|---|
| Y29DI | Plain self-seal envelopes | 7.99 per 500 |
| Y29WW | White window envelopes (A4) | 8.80 per 500 |
| Y13BP | Economy manila plain (A5) | 6.20 per 1,000 |
| Y14BW | Economy manila window (A5) | 7.50 per 1,000 |
| Y21BP | Economy manila plain (A4) | 10.60 per 1,000 |
| Y22BW | Economy manila window (A4) | 11.30 per 1,000 |
| W66MS | Whiteboard marker set (6) | 4.90 |
| W67MS | Whiteboard marker set (10) | 8.30 |
| W41OD | Document wallets (paper) | 4.21 per 50 |
| W420K | Document wallets (plastic) | 15.80 per 100 |
| W550P | Document zipper wallets (plastic) | 8.60 per 10 |
| A91FF | Accordion expanding file | 3.40 |
| A34SP | Suspension files (paper) | 26.70 per 50 |
| P52LK | Personal lockable file | 28.30 |
From the information you are required to prepare sales invoices to be sent out with the orders for these goods.
1: RECORDING FINANCIAL TRANSAC
80 New High Street Exeter
Devon EX4 2LP
Telephone 01233 464409
Tax Reg. No. 486 4598 220
Invoice No
E10947
Customer
PJ Freeman
New Street
Plymouth
Devon PL4 7ZU
Customer ref:
Order No:
Date/Tax Point: 22 June 20X4
| 10,000 A5 economy manila plain envelopes | |
| 10,000 Window envelopes white A4 | |
| Less; early settlement discount | |
| Sub total | |
| Sales tax at 20% | |
| Invoice total |
Terms:
80 New High Street
Exeter
Devon EX4 2LP
Telephone 01233 464409
Tax Reg. No. 486 4598 220
Invoice No:
E10948
Customer
DU Enterprises
Finch Estate
Dartmouth
EX55 99R
Customer ref:
Date/Tax Point: 22 June 20X4
Order No:
| 200 Suspension files | |
| 500 Document wallets (paper) | |
| 400 Document wallets (plastic) | |
| Total for goods before discount | |
| Less: trade discount of 5% | |
| Sub total | |
| Sales tax at 20% | |
| Terms: | |
| Invoice total |
80 New High Street Exuter
Devon EX4 2LP
Telephone 01233 464409
Tax Reg. No. 486 4598 220
Invoice No
E10949
Customer
Tab Design
22 Fairmount Road
Tavistock
Devon TA4 888
Customer ref
Order No:
22 June 20X4
Date/Tax Point:
| 3 Whiteboard marker sets (10) | |
| 1. Personal lockable file | |
| 7 Accordian expanding files | |
| 3,000 Plain self-seal envelopes | |
| Sub total | |
| Sales tax at 20% | |
| Invoice total |
Terms:
For a suggested answer, see the 'Answers' section at the end of the book.
The procedures and processes for authorising, preparing and checking and approving a credit note are very similar to those for a sales invoice. This is perhaps not surprising, since preparing a credit note is simply the reversal of all or part of an earlier sales invoice, or the correction of an earlier sales invoice. Remember that when credit notes are issued, they are numbered sequentially.
The customer details can be obtained from the file of customer records or from a copy of the original invoice.
When a customer returns goods, there should be a check of the quantities returned and their condition. When the goods have been checked, some form of goods returned note should be completed. This will include details of the goods returned and usually the reasons for their return. If the reason for the credit note is not goods returned as such but a change in price or an allowance for poor work, then the source document may be a letter, a fax, an e-mail, or even a note on the original invoice.
This information is part of what is required for the credit note. However, as well as knowing the quantity of goods returned, we also need to know the price originally charged to the customer. The list price can be found from the price list that was in issue at the date of the original invoice and any trade discount allowed should be identified from the customer details file or a copy of the original invoice.
If a credit note is to be issued to correct an error on the original invoice rather than for the return of any goods from the customer, then the details for the credit note will normally be available from the original invoice together with any subsequent correspondence with the customer giving details of the amount and reason for the correction.
When a credit note is issued, the amount of sales tax payable is also reduced. The sales tax on the credit note should be calculated in the same way as on the invoice.
A credit note needs to be prepared for Tab Design, for sales returns. The amount of the credit note was $28.30 before sales tax at 20%. What should be the total value of the credit note?
For a suggested answer, see the 'Answers' section at the end of the book.
SALES AND SALES RECORDS