The following documents are used in a typical credit transaction between a buyer and a seller. Document Purchase order Goods received note Invoice Credit no...
Question 1 Report
The following documents are used in a typical credit transaction between a buyer and a seller.
| Document |
|---|
| Purchase order |
| Goods received note |
| Invoice |
| Credit note |
| Statement of account |
| Remittance advice |
| Receipt |
(a) Place the documents in the correct order in which they would typically be used in a credit sale transaction (from first to last). [4]
(b) State who prepares each of the following documents (buyer or seller). [4]
| Document | Prepared by |
|---|---|
| Purchase order | |
| Invoice | |
| Credit note | |
| Remittance advice |
(c) Explain the purpose of a goods received note. [2]
(d) State the book of prime entry in which the invoice would be recorded by:
(i) the seller [1]
(ii) the buyer [1]
(e) Explain why the buyer should check the goods received note against the invoice before making payment. [4]
(f) State two reasons why a credit note might be issued. [2]
(g) Explain the purpose of a remittance advice. [2]
Answer Details
(a) Correct order of documents in a credit sale transaction
- Purchase order [1]
- Goods received note (prepared when goods are delivered)
- Invoice [1]
- Credit note (issued if goods are returned or there is an overcharge)
- Statement of account [1]
- Remittance advice (sent with payment)
- Receipt [1]
The sequence follows the flow of a credit transaction: the buyer places an order, goods are delivered and checked, the seller sends the invoice, any returns are documented with a credit note, the seller sends a periodic statement, the buyer pays and sends a remittance advice, and finally the seller issues a receipt.
(b) Who prepares each document
| Document | Prepared by |
|---|---|
| Purchase order | Buyer [1] |
| Invoice | Seller [1] |
| Credit note | Seller [1] |
| Remittance advice | Buyer [1] |
(c) Purpose of a goods received note
A goods received note records the goods that have actually been received by the buyer on delivery. [1] It is used to check against the purchase order and the invoice to confirm the quantity, description, and condition of the goods received. [1]
(d) Book of prime entry for the invoice
(i) In the seller's books: the sales day book. [1]
(ii) In the buyer's books: the purchases day book. [1]
(e) Why the buyer should check the goods received note against the invoice
To verify that the correct quantity of goods was received and that the buyer is not being overcharged for undelivered items. [1]
To check that the prices on the invoice match the agreed or quoted prices. [1]
To confirm that the goods received are in good condition and not damaged. [1]
To ensure that the arithmetic on the invoice is correct, including any discounts that should have been applied. [1]
(f) Two reasons why a credit note might be issued
Goods were returned by the buyer because they were defective, damaged, or not as ordered. [1]
There was an overcharge on the original invoice, such as a pricing error or arithmetic mistake. [1]
(g) Purpose of a remittance advice
A remittance advice informs the seller which specific invoices are being paid by the accompanying payment. [1] This helps the seller allocate the payment correctly to the right account and outstanding invoices. [1]
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