2.2 Business documents (3)
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1.
A business is analysing its cash flow for the month of June. They have access to an invoice from a supplier, a credit note from the same supplier, a cheque counterfoil, a paying-in slip, a receipt from a customer, and their monthly bank statement. Explain, with reference to the documents, how the business can use these documents to determine the net cash inflow for the month of June.
To determine the net cash inflow for June, the business needs to calculate the total cash received and subtract the total cash paid. Here's how each document contributes:
- Invoice: The invoice shows the amount the business is owed by a supplier. It represents a cash *outflow* as the business has already incurred the expense. The amount on the invoice is deducted from the total cash paid.
- Credit Note: The credit note reduces the amount owed on the original invoice. It represents a reduction in the cash *outflow*. The amount on the credit note is subtracted from the original invoice amount.
- Cheque Counterfoil: The cheque counterfoil shows the details of a cheque issued by the business. This represents a cash *outflow*. The amount of the cheque is recorded.
- Paying-In Slip: The paying-in slip shows the cash deposited into the business's bank account. This represents a cash *inflow*. The amount deposited is recorded.
- Receipt: The receipt shows cash received from a customer. This represents a cash *inflow*. The amount received is recorded.
- Bank Statement: The bank statement provides a record of all transactions in the business's bank account. This confirms the cash inflows (deposits) and outflows (payments) recorded on the paying-in slips and cheque counterfoils. It allows for verification of the amounts and dates.
The net cash inflow is calculated as: Total Cash Inflows - Total Cash Outflows. The business would sum the amounts from the receipt and paying-in slip (cash inflows) and then subtract the amounts from the invoice, credit note, and cheque counterfoil (cash outflows). The bank statement is used to verify these figures.
2.
A company purchased office supplies for £150 on credit from a supplier. The supplier then sent an invoice. The company paid the invoice in full. Describe the invoice, the payment, and the corresponding document the supplier would issue to acknowledge the payment. Explain the difference between a receipt and an invoice.
Invoice: An invoice is a document issued by a seller to a buyer, detailing the goods or services supplied, the quantity, the price per unit, and the total amount due. The invoice from the supplier would show the office supplies, the quantity, the price, and the total of £150.
Payment: The company paid the invoice in full, likely by cheque or bank transfer. This reduces the company's liability to the supplier.
Credit Note: The supplier would issue a credit note for £150 to the company. This reduces the amount the company owes to the supplier. It essentially acts as a refund or adjustment to the original invoice.
Difference between Receipt and Invoice: An invoice is issued before payment and requests payment. A receipt is issued after payment and serves as proof of payment. It confirms that the payment has been received.
3.
Explain the difference between a receipt and a paying-in slip in the context of a business. Give an example of how each document is used to record a business transaction.
Receipt: A receipt is a document provided to a customer to confirm that they have paid for goods or services. It serves as proof of payment from the customer's perspective. It's issued by the business to the customer. It records an inflow of cash for the business.
Example: A shop sells a product for £20. The shopkeeper gives the customer a receipt for £20, showing the date, the items purchased, and the amount paid. This confirms the customer's payment and provides a record of the sale for the business.
Paying-In Slip: A paying-in slip is a document used by the business to record the cash that is deposited into the business's bank account. It's used by the business to record a cash inflow to the bank.
Example: A business owner takes £500 in cash and deposits it into the business's bank account. The business owner completes a paying-in slip, recording the date, the amount deposited (£500), and the bank account details. This document is then submitted to the bank to record the deposit.