Prepare and Process Invoices for Cash and Credit Sales

Prepare and process invoices for cash and credit sales

Contents Introduction 3 The accounts receivable process 3 Feedback to activities 25

Prepare and process invoices for cash and credit sales 1 © NSW DET 2006 2006/053/12/2006 LRR 4673/4670

2 Prepare and process invoices for cash and credit sales © NSW DET 2006 2006/053/12/2006 LRR 4673/4670

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. 1 A sale is made by a business, and a tax invoice is produced. 2 This tax invoice is recorded in the sales journal. If something 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 allowances journal. 3 The buyer will make a payment of money owing for all the sales in a month. This payment is recorded on a receipt. 4 The receipt is then recorded in the cash receipts journal. 5 All the transactions for each month are recorded in the accounts receivable subsidiary ledger. 6 The transactions between the buyer and seller for a particular month are also recorded on a statement, which is sent to the buyer.

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 Explanation

Tax invoice Sale is made by business on Sales journal All tax invoices are credit (payment will be made at recorded in our sales a later date). journal. Tax adjustment Buyer notifies seller that Sales returns and All tax adjustment notes are note something was wrong with the allowances journal recorded in our sales goods they received or the (if a separate journal returns and allowances invoice they received. The is used for these) or journal (or in the sales goods may be returned to the the sales journal journal). seller. The seller reduces the amount the buyer has to pay. Receipt Buyer pays the seller either all Cash receipts journal All receipts are recorded in the money owing or part of the our cash receipts journal. money owing. Receipts issued for cash sales are called Cash sale tax invoice. Accounts receivable The seller maintains its subsidiary ledger own accounts receivable ledger. This records the same information for each buyer as the statement. Schedule of accounts When the amount owed by receivable 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 Statements may be summary of the month’s reconciled with our transactions. 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, a customer 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 as a cash sale. It is important to be aware that a cash sale can be made by the customer giving cash or a cheque or using a credit card for the purchase.

Goods and services tax (GST)

Since 1 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 of any 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 as they 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.

WESELLIT ABN 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 Facial tissues $2.45/box $88.20 boxes 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

Date Invoice Particulars Fol Account Sales GST no s rec 20xx $ $ $ Mar 8 6357 McMillan 220.32 200.29 20.03 Enterprises (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.

WESELLIT ABN 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

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 1 Date Invoice Particulars Folio Accts Sales GST no rec

Now compare your answer to the completed sales journal (Figure 4).

Sales journal

SJ 1 Date Invoice Particulars Folio Accts Sales GST no rec 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 sales column? 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

SJ1 Date 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 the accounts 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 1

Record 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 & KARPER

ABN 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

Simpsons Store

53 Technical Street, Ultimo 2009

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

KARPER & KARPER

ABN 98 765 432 111

Cityscape Pty Ltd

87 Namingera Road, Eucalypt 2901

6 only Bathroom sets $51.95 ea $311.70

10 sets Crystal dressing table set $39.85/set $ 398.50

$710.20

GST $62.18

KARPER & KARPER

ABN 98 765 432 111

R & M Mackie

42 Miners Lane, Belfield 2319

1 only Cane outdoor setting $142.00 ea $142.00

2 only Armchairs $85.50 ea $ 171.00 $313.00

GST $31.30

KARPER & KARPER

ABN 98 765 432 111

Simpsons Store

53 Technical Street, Ultimo 2009

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

Cityscape Pty Ltd

87 Namingera Road, Eucalypt 2901

36 only Home ornaments (assorted) $1.95 ea $70.20

$70.20

$63.18

GST $6.32

KARPER & KARPER

ABN 98 765 432 111

C Ambert

75 Cleveland Street, Eucalypt 2901

3 only Painting sets $59.85 ea $179.55

1 only Cordless drill $255.00 ea $ 255.00

$434.55

GST $41.28

KARPER & KARPER

ABN 98 765 432 111

C & L Designs

6 Pitt Street, Pyrmont 2009

2 only 3 m extension ladders $183.45 ea $366.90

25 only 2 m drop sheets $5.95 ea $ 148.75

$515.65

GST $49.14

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 2

Record 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-OPERATIVE

ABN 11 222 333 444

PO BOX 58 Countrytown NSW 2837

Croft & Croft

35 Lingham Street, Beecham 2765

16 kg Hifert fertiliser $45.00/kg $720.00

3 only Drench guns $124.80 ea $ 374.40

$1 094.40

$1 007.04 GST $100.70

1 TERMS: 2 /2% discount on payment received 21 days after statement

ABN 11 222 333 444

PO Box 58 Countrytown NSW 2837

"Kia Ora"

Old Beecham Road, Beecham 2765

2 only Scarifier discs $105.00 ea $210.00

GST $21.00

ABN 11 222 333 444

Stradbroke Ltd

RMB 456, Beecham 2765

12 m Irrigation pipe $33.50/m $402.00

6 bags Working dog food $12.80/bag $ 76.80

$478.80

$440.50

GST $44.05

ABN 11 222 333 444

L & M Whitton

Back Goolong Road, Beecham 2765

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

ABN 11 222 333 444

Croft & Croft 35 Lingham Street, Beecham 2765

2 only Shearing combs $85.00 ea $170.00

3 only Drench guns $124.80 ea $ 374.40

$544.40

$517.30

GST $51.73

ABN 11 222 333 444

Stradbroke Ltd

RMB 456, Beecham 2765

50 rolls Baling twine $12.75/roll $637.50

$637.50

$624.75

GST $62.48

ABN 11 222 333 444

P & S Russell

"Pine Ridge", RMB 1154, Beecham 2765

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

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 1 Date Invoice Particulars Folio Accts rec Sales GST no 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 1 Date Invoice Particulars Folio Accts rec Sales GST no 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