2.2 Business documents (3)
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1.
A business received an invoice from 'Office Supplies Ltd' for £250. They also received a credit note from the same supplier for £50 due to a damaged shipment. The business paid the invoice by cheque. A copy of the cheque counterfoil is shown below. The business also received a cash payment of £100 from a customer. Explain how the business would use the invoice, credit note, cheque counterfoil, and receipt to update its accounting records and calculate the net amount paid to Office Supplies Ltd.
Here's how the business would use the documents:
- Invoice (£250): The invoice initially records the £250 expense. This would be recorded in the business's accounts as a liability (money owed).
- Credit Note (£50): The credit note reduces the amount owed. The £50 would be deducted from the original £250 invoice amount. This means the business only owes £200 to Office Supplies Ltd.
- Cheque Counterfoil: The cheque counterfoil confirms the payment of £200 to Office Supplies Ltd. This would be recorded in the business's accounts as a payment reducing the amount owed to the supplier.
- Receipt (£100): The receipt for £100 from a customer is irrelevant to the calculation of the amount paid to Office Supplies Ltd. It represents a separate transaction.
To calculate the net amount paid to Office Supplies Ltd, the business would subtract the credit note amount from the original invoice amount: £250 - £50 = £200. The cheque counterfoil confirms that £200 was paid. The accounting records would reflect a reduction in the amount owed to Office Supplies Ltd by £50 (credit note) and a payment of £200.
2.
Explain the purpose of a cheque and a receipt in a business transaction. Describe a scenario where a business might issue a cheque to a supplier and a scenario where a business would issue a receipt to a customer. Include details of the information that should be included on each document.
Cheque: A cheque is a written order instructing a bank to pay a specified sum of money to the person or company named on the cheque. It's a method of payment. A cheque should include the date, the payee's name, the amount in both words and figures, the payer's signature, and the bank's details.
Receipt: A receipt is a document provided to a customer as proof of payment for goods or services. It confirms that the customer has paid the amount requested. A receipt should include the date, the name of the business, a description of the goods or services provided, the amount paid, and the signature of the person receiving the payment.
Scenario 1 (Cheque to Supplier): A business orders materials from a supplier and agrees to pay £200 by cheque. The business would write a cheque made payable to the supplier, detailing the amount and including all necessary information. This fulfills the payment obligation.
Scenario 2 (Receipt to Customer): A retail business sells goods to a customer for £50. The business would provide the customer with a receipt detailing the items purchased, the total amount paid, and the date of purchase. This provides proof of the transaction for both the business and the customer.
3.
A business has supplied goods to a customer for £500. The customer has paid the business £200 upfront, with the remaining balance to be paid later. Prepare a statement outlining the transactions and the outstanding amount. Explain the purpose of a debit note and a credit note in this scenario.
Statement of Account
| Item | Amount |
| Initial Payment | £200 |
| Goods Supplied | £500 |
| Outstanding Balance | £300 |
Debit Note: A debit note is used by a seller to increase the amount owed by a customer. In this case, the seller would issue a debit note for £500 to the customer when the goods are supplied. This increases the customer's liability.
Credit Note: A credit note is used by a seller to reduce the amount owed by a customer. If the initial payment was made in error, or if goods are returned, a credit note would be issued for £200 to reduce the outstanding balance. Alternatively, if a discount is given, a credit note would be issued.