investigating the flow of financial documents 2

3.17b

Investigating the flow of financial documents 2

3.17b Investigating the flow of financial documents 2

The sequence of documents

Stage 2 – payment notification

Seller makes out invoice listing goods, price, discounts and VAT

Credit note is issued if any goods are returned

End of month – seller issues statement of account listing all transactions and balance owing. May include remittance advice slip for buyer to return with payment


The invoice

To: Jones and Kelly

Riverside Walk

HIGHTOWN HG2 8PP

Yr order no Cust A/c no Date/tax point Invoice No

123 789 12 June 2002 20202

Item code Quantity Description Unit price Net value

DT686 2 x 50 Datec disks £12.99 £25.98

Terms: net 28 days

Carriage Paid

E & OE

TOTAL £25.98

VAT 17.5% £4.54

TOTAL DUE £30.52


The invoice – key points

Always on headed paper

Invoice shows VAT registration number

All items listed separately, then totalled

VAT added to sub-total to give total due

Terms = date when payment due

E & OE = errors and omissions excepted – gives firm right to amend errors later.


VAT – key points

VAT = value added tax

Charged on most goods/services sold

Current rate = 17.5% – but Government can change rate

Businesses pay VAT to suppliers and collect VAT from customers. They pay the difference to HM Customs & Excise

Small scale businesses do not have to do this – but still have to pay VAT on purchases


Credit note

To: Jones and Kelly

Riverside Walk

HIGHTOWN HG2 8PP

Yr return ref

Cust a/c no.

Date/tax point

Invoice no. Credit note no.

37 789 14 June 20202 671

Item code Quantity Description Unit price Net value

DT686 1x 50 Datec disks £12.99 £12.99

Reason for return:

Goods faulty

TOTAL £12.99

VAT 17.5% £2.27

TOTAL DUE £15.26


Credit note – key points

Goods damaged

Incorrect goods delivered – and returned

Fewer goods delivered than charged on invoice

Overcharge on invoice

Only issued when there is a problem and a refund is required, eg


Statement of account

To: Jones and Kelly Customer a/c no: 789

Riverside Walk Credit limit: £10,000

HIGHTOWN HG2 8PP Date: 30 June 2002

Date Details Debit (£) Credit (£) Balance (£)

1 June Balance owing 70.00

12 June Invoice 20202 30.52 100.52

13 June Cheque 6060 70.00 30.52

14 June Credit note 671 15.26 15.26

AMOUNT NOW DUE £15.26


Statement of account – key points

Sent at end of month

Starts with any amount owing from previous month

All invoices add to amount owed

All credit notes and payments reduce amount owed

Final column shows balance after each transaction

Ends with current amount due

May include remittance advice for payment


Remittance advice

From: Jones and Kelly Customer a/c no.: 789

Riverside Walk

HIGHTOWN HG2 Statement date: 30/6/02

Amount enclosed Cheque no.

Your ref Date of payment


Remittance advice – key points

Often tear-off form at end of statement

Customer includes form with payment

Supplier can immediately link payment to customer and statement.


The sequence of documents

Stage 3 – making payment

Buyer checks invoice and statement

If correct, normally pays by cheque.

Note: receipts may be issued by seller if cash payments are received for any reason


Cheques – key points

Cheques printed by banks

Business cheques include company name

May be completed by hand or printed by computer

Items completed are: date, payee, amount in words and figures

Cheques for large amounts signed by more than one person

Counterfoil states reason for payment


Cash sale receipt

EASYPRINT MAIN STREET HIGHTOWN

Name: John Smith Receipt no.: 123

Address: 2 Windy Road Date: 10 June 2002

Hightown

50 coloured photocopies £5.50

VAT @ 17.5% £0.96

Total paid £6.46

Received by: Paula King


Cash sales receipt – key points

Proves amount was paid

Should be kept safely in case goods faulty

Normally only issued for cash payments – not required for cheque payments


Computerised accounting packages

Used by most businesses to:

Calculate and print invoices, credit notes and statements

Pay suppliers, including printing cheques

Keep records of all transactions including VAT

Produce reports, such as overdue payments

Monitor the bank balance

investigating the flow of financial documents 2

Documents