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Important notes 3
Reconcile invoices for payment to creditors
Businesses conduct financial transactions when they purchase or sell goods or services. Information about these transactions comes from a range of documents eg
- Cash sales docket – when a cash sale is made
- Receipt – when a cash or credit payment is made
- Cheque butt – records the details of a cheque payment
- Cheque (and remittance advice) in payment of an account
- Purchase order – indicating what goods have been ordered
- Tax Invoice – an account sent indicating the goods or services provided, price, GST, freight and other charges and total amount payable
- Adjustment Note or Credit Note – specifies the value of goods being returned, or an allowance or discount given
- Statement – a record of all transactions with a particular supplier or bank for a given period
| Final Source Documents | |
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These documents are known as financial source documents because they are the source of financial information. When a business wishes to order goods, a Purchase Order is prepared and sent to the supplier. When goods are purchased on credit, the supplier is known as a creditor. Remember: Creditors = Accounts Payable = Money owed to another business. Most purchases made on credit must be paid for within a specified time eg 30 days. In return, the goods and a delivery docket will be dispatched to the purchaser. In these examples, Camden Crafts is the supplier and a creditor of Country Décor. |
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A Tax Invoice (the account or bill) will also be sent to the supplier, sometimes accompanying the goods and sometimes in the mail.
It is good commercial practice to make sure that all financial documents are checked for accuracy – both for financial accuracy and in making sure the goods or services received match those ordered.
Discrepancies between invoices and source documents are identified and reported to nominated person for resolution
Discrepancies and errors should be reported to the authorised person as soon as possible so that he/she can arrange for correcting entries or delivery or return of goods.
When the delivery docket and invoice are received
- the content should be checked with the original Purchase Order form to make sure the total order has been received.
- it should be ensured that the amount/unit, description (colour, size etc) is correct.
If any details are incorrect, the nominated person should be advised in accordance with organisational policy and procedures.
Adjustments and errors are identified, reported and rectified in accordance with organisational requirements
Payments are not made until invoices have been checked and authorised to be paid.
When the invoice is received, the following should be checked.
- The accuracy of all calculations including extensions, trade discount if offered, sub-totals and totals.
- That the initial and date the invoice/account if it is correct and ready for payment.
- If corrections are required, a neat line is ruled through the incorrect figure and write the correction above.
- White out or erasers are not used, neither are red or green ink or pencil.
- Invoices should be marked with initials and the date of checking. It may also be required to add ‘Extensions and Additions checked’ or ‘E&A checked’.
- Any errors or discrepancies are advised to the nominated person in accordance with organisational policy and procedures.
| INTEROFFICE MEMORANDUM | |
|---|---|
| To: | Supervisor |
| From: | Your name |
| Date: | 29 September 2003 |
| Subject: | Tax Invoice 3821/Delivery Docket 3821 from The Bear Supply Co |
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The calculations on the Tax Invoice are also incorrect. Corrections have been marked on the Tax Invoice. |
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If the organisation needs to return goods or receive an allowance or refund the supplier will issue an Adjustment Note or Credit Note (which reduces the amount of money owed to the supplier).
The organisation will also receive a Statement listing all the transactions for a particular period (usually monthly). This document should accurately reflect all the invoices and adjustments received, payments made and discounts given.
Creditor enquiries are answered and/or referred to nominated person for resolution
A creditor is a person or organisation which is owed money for the provision of goods or services on credit. Good record keeping (eg keeping copies of purchase orders, correctly entering details of payment made on cheque butt and in Payments Journal, detailing payments sent in the outgoing mail register, updating the creditor’s ledger) will allow the organisation to provide up-to-date and accurate information to creditors. More detailed enquiries should be referred to an authorised person as per organisational policy and procedures.
Prepare invoices for debtors
Invoices are prepared accurately in accordance with organisational requirements
An organisation will prepare a Tax Invoice when it receives a Purchase Order from another person or business. The invoice is an account for the cost of goods sold on credit – the purchaser has a period of time in which to pay the account. Remember: Debtors = Accounts Receivable = Money owed to the business.
Invoices should detail the following information
- The name of the supplier, the words ‘Tax Invoice’, an invoice number and the organisation’s Australian Business Number (ABN)
- The correct name (and relevant account number) of the customer
- A Purchase Order number or reference and delivery instructions if applicable
- The correct quantity, description and unit price of each item
- Correct calculations, extensions, GST, discount, sub-totals and totals
Financial source documents such as invoices are ‘accountable’ – they carry a unique identifying number and must be recorded in strict numerical order. They must also be prepared with care and accuracy.
If a mistake is made on a document, the error must be neatly ruled through and the correction made above/nearby, and initialled. This will not occur when using a software program if all figures are checked prior to printing. If the document is not able to be corrected it must be cancelled. Cancelled documents must be kept and recorded. Financial documents must not be thrown away any – the matter is referred to the appropriate person as per organisational policy and procedures.
Calculations
Care must be taken with
- extensions; accurately working out the cost of more than one item eg
| Quantity | Code | Description |
Unit Price
|
Total
|
|---|---|---|---|---|
|
3
|
SM56 | Coffee Table |
156.00
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468.00
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- additions; accurately determining the total cost of the order, including GST and discounts eg
| Quantity | Code | Description |
Unit Price
|
Total
|
|---|---|---|---|---|
|
3
|
SM56 | Coffee Table |
155.00
|
465.00
|
|
2
|
SM42 | Corner Table |
222.00
|
444.00
|
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Sub total
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909.00
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Less 5% Trade Discount
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45.45
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863.55
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Plus GST
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86.35
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TOTAL
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949.90
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Goods and Services Tax (GST)
GST is a 10% tax on the supply of most goods and services consumed in Australia. GST is not kept by the supplier. It is periodically forwarded on to the Australian Taxation Department. GST can either be added on to the total cost of goods or services or be included in the cost of each item. The method used must be indicated on the Tax Invoice.
Example 1 – Adding GST to each item
When adding GST to the cost of a good or service, divide the cost by 10% and add this figure to the original figure.
| eg | cost of goods = $20 |
|---|---|
| GST = 10% of $20 = $2 | |
| Total cost of goods = $22 |
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15 x Australian Dictionary @ $10.00 each
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150.00
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|---|---|
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Plus GST
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15.00
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Total
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165.00
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Example 2 – Including GST in the cost of each item
When working out the amount of GST included in the cost of a good, divide the total by 11.
| eg | cost of good = $33.00 |
|---|---|
| Divide $33 by 11 = $3 (GST) |
| Example | |
|---|---|
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15 x Australian Dictionary @ $11.00 each (price
includes GST)
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165.00
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Invoices are distributed to nominated person for verification prior to dispatch
Adjustments are made as required in accordance with organisational requirements
Once the invoice has been prepared it should be checked by the nominated person (and if necessary, corrections can be made) and the invoice dispatched as soon as possible. This allows the purchaser to make payment within the allocated time eg 30 days, or within the time allowed to receive a Prompt Payment discount eg 5% 7 days (if payment is made within 5 days, the customer can take a 5% discount).
Invoices and other related documents are copied and filed for auditing purposes
It is usual for organisations to make and file copies of all invoices making preparation of accurate financial records, and answering any queries about the transaction, easier. All transactions will need to be itemised on monthly statements issued to debtors. Many organisations use electronic filing systems for copies of financial source documents, or use accounting software, where a copy of all transactions is saved within the program, making preparation of statements and end-of-period financial reports much easier.
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