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Accounting Documents

Credit note

A credit note is a statement sent by a business to another or to a person to whom it supplies goods to indicate adjustments to an invoice sent previously and to inform that the account of the recipient of the credit note is credited by the amount as stated on the credit note. The amount stated on the credit note is the same as or lower than that on the invoice, and can never be higher. Credit notes are usually red in colour, serially numbered and similar to an invoice. The top copy of the credit note is sent while the duplicate copy is retained by the seller.

A credit note is issued:

  • When a customer returns goods
  • When a reduction is made to the amount of the invoice
  • When the amount on the invoice is overstated
  • When the customer has overpaid or paid twice for the same batch of goods
  • When the discount allowed is overlooked or the rate of the discount is understated.
  • When goods despatched are damaged or of wrong specifications or not complete.
  • When a cancellation is made to an invoice due to incorrect entry of data, etc.

Credit notes that are sent to customers who returned goods are recorded in the returns inwards journal and credited to the customer’s account.

In situation where the invoice already sent has not yet been updated in the customer’s books or posted to the ledger, a credit note may still be issued or may not be issued depending on mutual agreement.

Debit note

Debit note is a document that is sent by a business to its suppliers whenever it returns goods to them. Goods returned in this manner are known as returns outwards and are recorded in a returns outwards journal. The supplier’s account is then debited. The source document for each entry made in the returns outwards journal is the debit note. A debit note gives details of the goods returned and the reason(s) for their return.

A debit note is also used when a seller undercharges a customer for goods sold or delivered. It shows the amount that the buyer owes to the seller, which is the difference between the original price of the goods sold and the undercharged amount. Debit notes are serially numbered and have a form that is similar to an invoice. They serve as a reminder that an amount is still outstanding.

Not all firms issue debit notes. It could be that they have no difficulty in collecting debts, or they have alternative ways of notifying their customers of the outstanding debts.

Delivery note

Delivery note is a document that the supplier sends together with the goods. On receipt of the goods, the buyer checks the goods against the delivery note to ensure there are no discrepancies. The buyer then signs the duplicate copy of the delivery note and returns it to the seller as acknowledgement of receipt of the goods.

The delivery note gives details of the goods delivered such as description, type, grade, quantity, etc. It is an important document as it serves as a proof that the goods have been received in the condition as expected.


An invoice is a written document of a transaction issued by a seller to a buyer (or a client).

A typical invoice states the date, name and contact information of both the buyer and customer. Also called a bill of sale, it lists and describes the products, their quantities, and price per unit and total price of the products that are being sold (or services provided). It shows the date of shipment, mode of transport and discounts if any and includes date of delivery and payment terms which stipulate the credit period for the payment to be made as well as the method of payment.

To the seller the invoice is a sales invoice, but is a purchase invoice to the buyer. Invoices do not vary widely as they observe a basic layout regardless of the types of goods for which they are designed to be used even though they may differ in other aspects.

The buyer gets the top copy of the invoice while the seller retains the second copy.

Pro forma invoice

A pro forma invoice is a document that has details and information of an ordinary invoice. A seller sends the top copy of the pro forma invoice to a buyer before the actual shipment or delivery of the goods takes place, and retains a copy for the seller’s record. The pro forma invoice states the types of goods, their quantities, values, weight and other charges such as transportation charges.

The pro forma invoice includes all other details that are typically found on the invoice such as date, name and contact information of the seller and buyer. It describes the goods being sold, the price per unit of each item of goods and the total price.  Other relevant information such as the method of payment and the date of delivery is also included.

The pro forma invoice is not recognized as an official invoice as the potential buyer has not decided on the purchase of an item or service or at a specified price. It can however be seen as a prelude to an agreement on the sale. Sometimes details on the invoice or the price may be changed after the sale is confirmed.

In some cases, the pro forma invoice is not fully filled up with the actual details. The required information is only filled out after there is mutual agreement on the sale. Some businesses choose not to use the pro forma invoice despite the fact that pro forma invoice has its advantages. It provides details that enable the buyer to make a definite decision before the actual sale takes place and avoid any after-sale misunderstandings between the seller and buyer. The buyer knows what to expect when such information as delivery date and payment terms are clearly stated on the invoice. Changes to the details on the invoice can be changed to mutual satisfaction.

Purchase invoice

A purchase invoice is a commercial document sent by a supplier of goods or services to the purchaser. It shows information such as the following:

  • Date of the purchase
  • Names and addresses of the buyer and seller
  • Contact numbers of the buyer and seller
  • Description of the goods purchased (or services provided)
  • Quantities of the goods purchased
  • Prices of the goods are shown at cost per unit and the total amount.
  • Payment terms which state the credit period, for example 30 days.

The purchase invoice acts as a request for payment. This creates an accounts receivable account in the seller’s books.

Purchase order

A purchase order is a document prepared by the purchasing company for every order for goods or services. It is a written authorization sent by a buyer to a seller to supply the specified types of goods, their quantities and agreed prices at a particular place and time. It includes payment terms, discounts if any and other terms and conditions deemed necessary. By accepting the purchase order, the seller enters into a legally binding agreement to supply the goods or to provide the services.

The use of purchase order avoids any dispute that may arise between the seller and buyer. The intentions of the buyer with regard to the purchase of goods or services are clearly spelled out on the purchase order. The purchase order safeguards the interests of the supplier in the event of long delay in settling overdue debts by the buyer or the buyer’s refusal to pay for the goods delivered or services provided.

Besides specifying the terms of purchase, the purchase order states whether it is for a one-off purchase or governs a series of purchases over a mutually agreed period of time. The original copy of the purchase order is sent to the suppliers for them to comply with the purchase terms as explained on the document, while another copy of the purchase order is for the supplier to acknowledge receipt of the order by signing and returning to the buyer.

Within an organization a purchase order can only come about by the issuance and approval of another document known as purchase requisition. A purchase requisition is a formal request for the purchase of specified goods or services. Once a purchase order is prepared, the next task is identifying the right supplier with regard to unit and total prices, the quality of the goods to be supplied or services to be provided, etc.

Purchase requisition

A purchase requisition comes in the form of a form that puts in a request for materials or items of goods to be purchased. The form is filled in with the required information by the person making the request. The request must be approved by the departmental head before it goes to the purchasing department. Typical information required on the purchase requisition would include the requester’s name and department, descriptions and quantities, etc of the items requested, the required delivery date and the possible suppliers.

Once the purchase requisition order has been processed and the rightful supplier found, another document called purchase order is prepared from the purchase requisition form so that the purchase of the requested items can proceed as long as there is allocation of funds for it. It is the duty of the purchase department to source the right supplier which may be from the list of suppliers listed on the requisition form. However, the final decision rests with the purchase department.

The purchase department is not authorized to make changes to the purchase requisition form without obtaining the prior approval of the department issuing the purchase requisition. The correct procedure should require solely the issuing department and not anyone else to make the required changes. One copy of the purchase requisition is retained in the issuing department.

In some businesses, the purchase requisition order may be used in place of the purchase order so that the purchase requisition instead is sent to the supplier even though a purchase requisition is not a purchase order and should not be used to purchase goods or services. However, big organizations adopt the purchase requisition procedure as a necessary measure aimed at internal financial control.

Remittance advice

A remittance advice is a document sent by a customer to notify the seller that payment for a particular invoice or invoices is being made. The use of remittance advice is not obligatory but rather is done out of courtesy as it assists in record keeping of the receiving company. It typically specifies the invoice number or numbers if more than one invoice is being paid, and the amount or total amount that is being paid.

Very often, payments are made by cheques. In such cases, the remittance advice is attached to the cheque. Most invoices have the remittance advice formed part of them. The remittance advice is detachable from the invoice so that it can be used to accompany the payment. The cash amount received must tally with the amount stated on the remittance advice. However, not all customers who make payments use the remittance advice. If required, a remittance advice has to be prepared by the staff member who is in charge of receiving payments.

In using remittance advices, the customers are confirming that they have received and are satisfied with the goods ordered by them. The remittance advice comes in different forms. They can be designed in a very simple format or one that is very complex. The very simple ones contain only the essential information. The complex ones list the goods item by item with unit price and the total amount besides other information.

Sales invoice

Sales invoice is a document detailing the record of a sale, and is issued for each sale that takes place. It shows the date of the sale, the sale invoice number, descriptions of the goods sold or services performed, how much the sale is worth, who is making the sale, who the customer is, the addresses and contact numbers of both seller and buyer, and how the goods sold are to be delivered.

The sale invoice serves as a reminder to the buyer that a debt is due. It is a documentary confirmation of a sale that has taken place, and can be looked upon as a safeguard to either of the parties involved in the transaction. Dispute rarely arises as all the required information that is mutually agreed to is clearly stated on the invoice.

Sales invoices are important source documents for recording in a company’s sales books and the invoice numbers are noted for reference and control purposes. They are also for determining year-end volume of debtors for presentation on financial statements. Unpaid invoices are usually kept in a file and removed when they are paid. These unpaid invoices must confirm the year-end closing balances of individual trade debtors in the sales ledger. Any discrepancy must be quickly rectified.

Last Updated (Friday, 29 October 2010 15:08)