Prepare and process invoices for cash and credit sales
Contents
Introduction
The accounts receivable process
Feedback to activities
Introduction
Sales are usually made on credit—in other words, the buyer will pay at a later date. When a business sells a service or product to a buyer on credit, the business issues an invoice (otherwise called a tax invoice). This is the beginning of what we call the accounts receivable process.
The accounts receivable process
There are a number of steps involved in the accounts receivable process.
1A sale is made by a business, and a tax invoice isproduced.
2Thistax invoice is recorded in the sales journal. Ifsomething is wrong with either the sale or the tax invoice produced for the sale, a tax adjustment note is produced. This tax adjustment note is recorded in the sales returns and allowancesjournal.
3The buyer will make a payment of money owing for all the sales in a month. This payment is recorded on a receipt.
4The receipt is then recorded in the cash receipts journal.
5All the transactions foreach month are recorded in the accounts receivable subsidiary ledger.
6Thetransactions between the buyer and seller for a particular month are also recorded on a statement, which is sent to thebuyer.
Take your time looking at Table 1, which shows the various steps in the accounts receivable process.
Table 1: Steps in the accounts receivable process
Document / Explanation / Journal/Ledger / ExplanationTax invoice / Sale is made by business on credit (payment will be made at a later date). / Sales journal / All tax invoices are recorded in our sales journal.
Tax adjustment note / Buyer notifies seller that something was wrong with the goods they received or the invoice they received. The goods may be returned to the seller. The seller reduces the amount the buyer has to pay. / Sales returns and allowances journal (if a separate journal is used for these) or the sales journal / All tax adjustment notes are recorded in our sales returns and allowances journal (or in the sales journal).
Receipt / Buyer pays the seller either all the money owing or part of the money owing. Receipts issued for cash sales are called Cash sale tax invoice. / Cash receipts journal / All receipts are recorded in our cash receipts journal.
Accounts receivable subsidiary ledger / The seller maintains its own accounts receivable ledger. This records the same information for each buyer as the statement.
Schedule of accounts receivable / When the amount owed by every debtor (customer) is known from the ledger at the end of each month, a list is made of all the debtors and the amounts they owe. This is known as the Schedule of accounts receivable. It is important because when it is added up the business knows how much is owed by debtors.
Statement / Seller provides the buyer with a summary of the month’s transactions. / Statements may be reconciled with our schedule of accounts receivable.
This is the basic process completed for the sale of goods on credit by a business. Remember, a credit sale is where payment is made at a later time than the goods were purchased.
Cash sales
As you know, businesses make many sales of goods on a cash basis. That is, acustomer buys goods and pays for the goods at the time they are purchased. In this case, the business has no need to keep a separate or subsidiary ledger for the customer as it does not have to notify the customer of what is owed (as it was paid in cash). This is known asacash sale. It is important to be aware that a cash sale can bemade by the customer giving cash or a cheque or using a credit card for the purchase.
Goods and services tax (GST)
Since1 July 2000,goods and services tax legislation requires businesses to collect 10% tax of all goods and services provided by the business. If the business pays GST when goods or services are purchased, the amount is offset against the amount collected and the net figure is then paid regularly to the Australian Taxation Office (ATO) by the business. Because we collect on behalf of someone else (the ATO) and the money is not ours, we record it in a liability account. It is a debt we must repay.
There are many ways of recording the GST in books of accounts. For simplicity we will use only one account for GST (called GST Clearing account). When GST is collected from or charged to our customers we record it in the GST clearing account on the credit side because it is an increase to a liability. If the business purchases goods or services then the GST clearing account is reduced by the amount we paid. This will be shown on the debit side of the account because the amount we have to pay to the ATO is decreased.
Most source documents show GST separately. If you receive an invoice that shows the total price, ie tax inclusive, the GST component can be calculated by dividing the total amount by 11.
The legislation requires that all source documents show the seller’s Australian business number (ABN), the words ‘Tax Invoice’ on invoices and ‘Tax Adjustment’ on tax adjustment notes and indicate how the GST is to be shown. In these learning materials we will assume that all requirements of the legislation have been followed.
Accounts receivable source documents
Financial source documents are the original records ofany transaction or event. They are pieces of paper which record the business’s transactions. Most businesses provide the original paper to the customer and use the second copy of the paper for their records. These are very important documents asthey provide the information for all future bookkeeping records. They are held for up to five years for auditing purposes.
The financial source documents for accounts receivable activities are:
- credit sale/tax invoice
- tax adjustment note (or credit note)
- cash receipts
- cash receipts/tax invoice.
You’ll see examples of these documents in these notes.
Sales journal
Look at the tax invoice number 6357 (Figure 1). There are six letters on the tax invoice marked (A) to (F); the information from each of these letters is recorded in the sales journal of Wesellit Department Store for March 20xx as follows.
WESELLITABN 12 345 678 111
PO Box 579 Lyneham 2387
Telephone: (057) 473 7436 Facsimile: (057) 473 7435
Tax Invoice No: 6357 [A] / Date: 8 March 20xx [B]
To:
McMillan Enterprises [C]
548 Lindwood Road, Pristone NSW 2540
Qty / Description / Rate / Total
36 boxes / Facial tissues / $2.45/box / $88.20
14 ctns / ‘Anna’ perfume / $10.15/ctn / $142.10
$230.30
Less trade discount / $30.01
$200.29 / [D]
GST 10% / $20.03 / [E]
Total including GST / $220.32 / [F]
Figure 1: Sales invoice
Sales journal—Wesellit Department Store
SJ1Date / Invoice no / Particulars / Fol / Accounts rec / Sales / GST
20xx
Mar 8 / 6357 / McMillan Enterprises / $
220.32 / $
200.29 / $
20.03
(B) / (A) / (C) / (F) / (D) / (E)
Figure 2: Sales journal—a single entry
By matching up the letters on the invoice in Figure 1 to the letters on the sales journal in Figure 2 you can see how the information from invoices is recorded in the sales journal.
Let’s explain the GST column. It’s very important to keep GST figures separate. GST is paid to the government at a later date. The amount must be paid by the customer. However, Wesellit Department Store will hold this money for payment to the government.
Try recording the information from the following invoice (Figure 3) in the sales journal provided.
WESELLITABN 12 345 678 111
PO Box 579 Lyneham 2387
Telephone: (057) 473 7436 Facsimile: (057) 473 7435
Tax Invoice No: 6358 / Date: 9 March 20xx
To:
Mr D Bowmoff
141 Leicester Road, Clarevale NSW 2618
Qty / Description / Rate / Total
1 only / Ryobi cordless drill / $269.90 ea / $269.90
4 only / Jigsaw blades / $5.25 ea / $21.00
$290.90
Less trade discount 7% / $20.36
$270.54
GST 10% / $27.05
Total including GST / $297.59
Figure 3: Sales invoice
Sales journal—Wesellit Department Store
SJ 1Date / Invoice no / Particulars / Folio / Accts rec / Sales / GST
$ / $ / $
Now compare your answer to the completed sales journal (Figure 4).
Sales journal
SJ 1Date / Invoice no / Particulars / Folio / Accts rec / Sales / GST
20xx / $ / $ / $
Mar 9 / 6358 / Mr D Bowmoff / 297.59 / 270.54 / 27.05
Figure 4: Sales journal—a single entry
Did you write the correct figure in the salescolumn? Remember that any discount which has been given must be deducted to get the true value of the sale. In some textbooks, the total sales value (before discount) is shown and the discount is treated as an expense (or negative entry) in the sales journal.
As we said, the journal is the book where the source documents are recorded. Usually journals are totalled monthly. Following is an example of a completed sales journal for the month of March. Can you identify the information recorded for March 8 and 9 from the two previous examples?
Sales journal
SJ1Date / Invoice no / Particulars / Folio / Accts rec / Sales / GST
20xx / $ / $ / $
Mar 1 / 6348 / M Browning / 29.60 / 26.91 / 2.69
2 / 6349 / G Gorkroger / 1 058.35 / 962.14 / 96.21
3 / 6350 / I Kensell / 139.68 / 126.98 / 12.70
4 / 6351 / G Gorkroger / 117.15 / 106.50 / 10.65
7 / 6352 / L J Simshauser / 217.98 / 198.16 / 19.82
7 / 6353 / P M Blackett / 619.19 / 562.90 / 56.29
8 / 6354 / B J Fox / 70.18 / 63.80 / 6.38
8 / 6355 / M Browning / 452.65 / 411.50 / 41.15
8 / 6356 / S & H Lindsay / 109.01 / 99.10 / 9.91
8 / 6357 / McMillan Enterprises / 220.32 / 200.29 / 20.03
9 / 6358 / Mr D Bowmoff / 297.59 / 270.54 / 27.05
12 / 6359 / Ms J Hanley / 167.86 / 152.60 / 15.26
13 / 6360 / L R Martin / 234.85 / 213.50 / 21.35
16 / 6361 / D Bowmoff / 61.11 / 55.55 / 5.56
19 / 6362 / P M Blackett / 211.86 / 192.60 / 19.26
20 / 6363 / Sparkes Electrical / 237.60 / 216.00 / 21.60
21 / 6364 / Bare Chairs Pty Ltd / 101.64 / 92.40 / 9.24
22 / 6365 / P J Tradern / 199.10 / 181.00 / 18.10
26 / 6366 / G Gorkroger / 72.85 / 66.23 / 6.62
27 / 6367 / Dept of Education / 111.54 / 101.40 / 10.14
31 / 6368 / I Kensell / 459.69 / 417.90 / 41.79
Total / $5189.80 / 4718.00 / $471.80
Figure 5: Entries in a sales journal
You should check your calculations by adding the total of the sales and GST columns. These two figures should equal theaccounts receivable column. If this is not the case, go back and check your calculations. If you still do not arrive at the correct figures, you must go back and check the details of each invoice you have entered. The amount of $5189.80 represents the total owed to us by our accounts receivable for the month of March.
/ Activity 1Record the invoices below in the sales journal of Karper & Karper. Use your own three-column journal paper. You will have to write the headings on your journal paper. Copy the headings from the sales journal earlier in this document.
Go ahead and complete this activity now.
KARPER & KARPERABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89024 / Date: 6 August 20xx
To:
Simpsons Store
53 Technical Street, Ultimo 2009
Qty / Description / Rate / Total
4 sets / Transistor repair kits / $28.50/set / $114.00
12 only / Multimeter Model X354 / $32.65 ea / $391.80
$505.80
Less trade discount / $63.22
$442.58
GST / $44.26
Total including GST / $486.84
KARPER & KARPER
ABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89025 / Date: 6 August 20xx
To:
Cityscape Pty Ltd
87 Namingera Road, Eucalypt 2901
Qty / Description / Rate / Total
6 only / Bathroom sets / $51.95 ea / $311.70
10 sets / Crystal dressing table set / $39.85/set / $398.50
$710.20
Less trade discount / $88.44
$621.76
GST / $62.18
Total including GST / $683.94
KARPER & KARPER
ABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89026 / Date: 10 August 20xx
To:
R & M Mackie
42 Miners Lane, Belfield 2319
Qty / Description / Rate / Total
1 only / Cane outdoor setting / $142.00 ea / $142.00
2 only / Armchairs / $85.50 ea / $171.00
$313.00
GST / $31.30
Total including GST / $344.30
KARPER & KARPER
ABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89027 / Date: 16 August 20xx
To:
Simpsons Store
53 Technical Street, Ultimo 2009
Qty / Description / Rate / Total
24 only / Desk arrangers / $18.55 ea / $445.20
2 only / Bubble-jet printers / $425.85 ea / $851.70
$1 296.90
Less trade discount / $162.11
$1 134.79
GST / $113.48
Total including GST / $1 248.27
KARPER & KARPER
ABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89028 / Date: 22 August 20xx
To:
Cityscape Pty Ltd
87 Namingera Road, Eucalypt 2901
Qty / Description / Rate / Total
36 only / Home ornaments (assorted) / $1.95 ea / $70.20
$70.20
Less trade discount / $7.02
$63.18
GST / $6.32
Total including GST / $69.50
KARPER & KARPER
ABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89029 / Date: 28 August 20xx
To:
C Ambert
75 Cleveland Street, Eucalypt 2901
Qty / Description / Rate / Total
3 only / Painting sets / $59.85 ea / $179.55
1 only / Cordless drill / $255.00 ea / $255.00
$434.55
Less trade discount / $21.73
$412.82
GST / $41.28
Total including GST / $454.10
KARPER & KARPER
ABN 98 765 432 111
46 Lightning Road Summerville 2658
Telephone: (037) 45 4876 Facsimile: (037) 45 4877
Tax Invoice No: 89030 / Date: 29 August 20xx
To:
C & L Designs
6 Pitt Street, Pyrmont 2009
Qty / Description / Rate / Total
2 only / 3 m extension ladders / $183.45 ea / $366.90
25 only / 2 m drop sheets / $5.95 ea / $148.75
$515.65
Less trade discount / $24.28
$491.37
GST / $49.14
Total including GST / $540.51
Check your answers with those at the end of this document. How did you go? Each time you do one of these exercises, go back and check every single entry. If anything is wrong go back and check the details on the original invoice, then make any corrections.
/ Activity 2Record the following tax invoices in the sales journal of the Farmer’s Co-operative. Use your own three-column journal paper, adding the appropriate headings.
Go ahead and complete this activity now.
FARMER’S CO-OPERATIVEABN 11 222 333 444
POBOX 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10101 / Date: 8 August 20xx
To:
Croft & Croft
35 Lingham Street, Beecham 2765
Qty / Description / Rate / Total
16 kg / Hifert fertiliser / $45.00/kg / $720.00
3 only / Drench guns / $124.80 ea / $374.40
$1 094.40
Less trade discount / $87.36
$1 007.04
GST / $100.70
Total including GST / $1 107.74
TERMS: 21/2% discount on payment received 21 days after statement
FARMER’S CO-OPERATIVE
ABN 11 222 333 444
PO Box 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10102 / Date: 12 August 20xx
To:
"Kia Ora"
Old Beecham Road, Beecham 2765
Qty / Description / Rate / Total
2 only / Scarifier discs / $105.00 ea / $210.00
GST / $21.00
Total including GST / $231.00
TERMS:21/2% discount on payment received 21 days after statement
FARMER’S CO-OPERATIVE
ABN 11 222 333 444
PO Box 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10103 / Date: 14 August 20xx
To:
Stradbroke Ltd
RMB 456, Beecham 2765
Qty / Description / Rate / Total
12 m / Irrigation pipe / $33.50/m / $402.00
6 bags / Working dog food / $12.80/bag / $76.80
$478.80
Less trade discount / $38.30
$440.50
GST / $44.05
Total including GST / $484.55
TERMS:21/2% discount on payment received 21 days after statement
FARMER’S CO-OPERATIVE
ABN 11 222 333 444
PO Box 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10104 / Date: 14 August 20xx
To:
L & M Whitton
Back Goolong Road, Beecham 2765
Qty / Description / Rate / Total
25 kg / Maize seed / $45.00/kg / $1 125.00
4 L / Mixed pesticide / $81.00/L / $324.00
$1 449.00
Less trade discount / $242.10
$1 206.90
GST / $120.69
Total including GST / $1 327.59
TERMS:21/2% discount on payment received 21 days after statement
FARMER’S CO-OPERATIVE
ABN 11 222 333 444
PO Box 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10105 / Date: 15 August 20xx
To:
Croft & Croft
35 Lingham Street, Beecham 2765
Qty / Description / Rate / Total
2 only / Shearing combs / $85.00 ea / $170.00
3 only / Drench guns / $124.80 ea / $374.40
$544.40
Less trade discount / $27.10
$517.30
GST / $51.73
Total including GST / $569.03
TERMS:21/2% discount on payment received 21 days after statement
FARMER’S CO-OPERATIVE
ABN 11 222 333 444
PO Box 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10106 / Date: 21 August 20xx
To:
Stradbroke Ltd
RMB 456, Beecham 2765
Qty / Description / Rate / Total
50 rolls / Baling twine / $12.75/roll / $637.50
$637.50
Less trade discount / $12.75
$624.75
GST / $62.48
Total including GST / $687.23
TERMS:21/2% discount on payment received 21 days after statement
FARMER’S CO-OPERATIVE
ABN 11 222 333 444
PO Box 58 Countrytown NSW 2837
Telephone: (027) 473 7436 Facsimile: (027) 473 7435
Tax Invoice No: 10107 / Date: 24 August 20xx
To:
P & S Russell
"Pine Ridge", RMB 1154, Beecham 2765
Qty / Description / Rate / Total
5 m / Double thread rope / $3.50/m / $17.50
3 bags / Lime & cement mix / $21.20 bag / $63.60
$81.10
GST / $8.11
Total including GST / $89.21
TERMS:21/2% discount on payment received 21 days after statement
Check your answers at the end of this document.
Did you get every single entry right? It is important that you learn to make accurate entries. Obviously any errors here would be carried on in the future work you do. It is much easier to correct errors here than it is later on.
Feedback to activities
Activity 1
Sales journal—Karper & Karper
SJ 1Date / Invoice no / Particulars / Folio / Accts rec / Sales / GST
20xx
Aug 6 / 89024 / Simpsons Store / $
486.84 / $
442.58 / $
44.26
6 / 89025 / Cityscape Pty Ltd / 683.94 / 621.76 / 62.18
10 / 89026 / R & M Mackie / 344.30 / 313.00 / 31.30
16 / 89027 / Simpsons Store / 1 248.27 / 1 134.79 / 113.48
22 / 89028 / Cityscape Pty Ltd / 69.50 / 63.18 / 6.32
28 / 89029 / C Ambert / 454.10 / 412.82 / 41.28
29 / 89030 / C & L Designs Ltd / 540.51 / 491.37 / 49.14
3 827.46 / 3 479.50 / 347.96
Activity 2
Sales journal—Farmer’s Co-operative
SJ 1Date / Invoice no / Particulars / Folio / Accts rec / Sales / GST
20xx
Aug 8 / 10101 / Croft & Croft / $
1 107.74 / $
1007.04 / $
100.70
12 / 10102 / ‘Kia Ora’ / 231.00 / 210.00 / 21.00
14 / 10103 / Stradbroke Ltd / 484.55 / 440.50 / 44.05
14 / 10104 / L & M Whitton / 1 327.59 / 1206.90 / 120.69
15 / 10105 / Croft & Croft / 569.03 / 517.30 / 51.73
21 / 10106 / Stradbroke Ltd / 687.23 / 624.75 / 62.48
24 / 10107 / P & S Russell / 89.21 / 81.10 / 8.11
4 496.35 / 4 087.59 / 408.76
Prepare and process invoices for cash and credit sales1
© NSW DET 2006 2006/053/12/2006 LRR 4673/4670