60
4: Sources, records and books of prime entry Part C The use of double entry and accounting systems
Please note that businesses will design their own invoices and there may be other copies for other
departments. Not all businesses will need four part invoices. A very small business may use the customer
copy of the invoice as a despatch note as well. In addition, the sales invoice may be stapled to the sales
order and both documents passed to the accounts department.
1.3 The credit note
China Supplies sent out an invoice for 20 dinner plates, but the typist accidentally typed in a total of
$162.10, instead of $62.10. The china shop has been
overcharged by $100. What is China Supplies
to do?
Alternatively, when the china shop received the plates it found that they had all been broken in the post
and that it was going to send them back. Although the china shop has received an invoice for $62.10, it
has no intention of paying it because the plates were useless. Again, what is China Supplies to do?
The answer is that China Supplies sends out a
credit note. A credit note is sometimes printed in red to
distinguish it from an invoice. Otherwise, it will be made out in much the same way as an invoice, but with
less detail and 'Credit Note Number' instead of 'Invoice Number'.
A
credit note is a document relating to returned goods or refunds when a customer has been
overcharged. It can be regarded as a
negative invoice.
1.4 Other documents
The following documents are sometimes used in connection with sales and purchases.
(a) Debit
notes
(b)
Goods received notes
A
debit note might be issued to adjust an invoice already issued. This is also commonly achieved by
issuing a revised invoice after raising a credit or debit note purely for internal purposes (ie to keep the
records straight).
More commonly, a debit note is issued to a supplier as a means of formally requesting a credit note.
Goods received notes (GRNs) record a receipt of goods, most commonly in a warehouse. They may be
used in addition to suppliers' advice notes. Often the accounts department will require to see the relevant
GRN before paying a supplier's invoice. Even where GRNs are not routinely used, the details of a
consignment from a supplier which arrives without an advice note must always be recorded.
Question
Credit note
Fill in the blanks.
'China Supplies sends out a . . . . . . . . . . . . to a credit customer in order to correct an error where a
customer has been overcharged on an . . . . . . . . . . . ..'
Answer
Credit note; invoice.
2 The need
for books of prime entry
In the course of business, source documents are created. The details on these source documents need to
be summarised, as otherwise the business might forget to ask for some money, or forget to pay some, or
even accidentally pay something twice. In other words, it needs to keep records of source documents – of
transactions – so that it knows what is going on. Such records are made in
books of prime entry.
Key term
Part C The use of double entry and accounting systems
4: Sources, records and books of prime entry
61
Books of prime entry are books in which we first record transactions.
The main
books of prime entry are as follows.
(a)
Sales day book
(b)
Purchase day book
(c)
Sales
returns day book
(d)
Purchase returns day book
(e)
Journal (described in the next chapter)
(f) Cash
book
(g) Petty
cash
book
It is worth bearing in mind that, for convenience, this chapter describes books of prime entry as if they are
actual books written by hand. However, books of prime entry are often not books at all, but rather files
hidden in the memory of a computer. However, the principles remain the same whether they are manual or
computerised.
You may get a question on books of prime entry, also you need to know where the entries to the ledger
accounts come from and how they are posted.
3 Sales and purchase day books
Invoices and credit notes are recorded in
day books.
3.1 The sales day book
The
sales day book is the book of prime entry for credit sales.
The sales day book is used to keep a list of all invoices sent out to customers each day. An extract from a
sales day book might look like this.
SALES DAY BOOK
Date
Invoice
Customer
Total amount
invoiced
20X0
$
Jan 10
247
Jones & Co
105.00
248
Smith Co
86.40
249
Alex & Co
31.80
250
Enor
College
1,264.60
1,487.80
Most businesses 'analyse' their sales. For example, this business sells boots and shoes. The sale to Smith
was entirely boots, the sale to Alex was entirely shoes, and the other two sales were a mixture of both.
Then the sales day book might look like this.
SALES DAY BOOK
Total
amount
Date
Invoice
Customer
invoiced
Boot sales
Shoe sales
20X0
$
$
$
Jan 10
247
Jones & Co
105.00
60.00
45.00
248
Smith Co
86.40
86.40
249
Alex & Co
31.80
31.80
250
Enor College
1,264.60
800.30
464.30
1,487.80
946.70
541.10
Key term
Key term
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Exam focus
point
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