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Principles of Accounting · Source documents

Reading invoices, credit notes and receipts

You can name the three documents, yet the amounts on them never seem to agree.

An invoice states what was sold and what is owed, a credit note reduces that debt, and a receipt confirms that money was paid. Read in order, the three give you the balance still owed.

This lesson is part of source documents in SPM Accounting. Once you can read the amounts, connecting documents with transaction effects shows how each one is recorded.

What does each document tell you?

Document Issued by What it shows What it does to the debt
Invoice Seller Goods, quantity, price, discount, total Creates it
Credit note Seller Goods returned or an overcharge, at the price charged Reduces it
Receipt Whoever receives the money Amount received and the date Settles part or all of it

Worked example: one trade from invoice to receipt

Seri Bakery sells bread to Kedai Aman on credit. Invoice 0412 shows 40 loaves at RM3.50 each, less a 10% trade discount.

  1. Before discount: 40 × RM3.50 = RM140.00.
  2. Trade discount: 10% of RM140.00 = RM14.00.
  3. Amount owed: RM140.00 − RM14.00 = RM126.00.

Five loaves arrive damaged, so Seri Bakery issues a credit note. The same 10% discount applies.

  1. Before discount, the returned loaves: 5 × RM3.50 = RM17.50.
  2. Less 10%: RM17.50 − RM1.75 = RM15.75.
  3. Amount now owed: RM126.00 − RM15.75 = RM110.25.

Kedai Aman then pays in full and Seri Bakery issues a receipt for RM110.25. The balance owed is now RM0.00.

The mistake that costs marks

A common slip is to credit the returned goods at list price, because the credit note looks like a fresh start. The working is tidy, so the error is easy to miss.

Step Wrong Right
Value of 5 loaves RM17.50 RM17.50
Apply the discount (skipped) Less 10%: RM15.75
Credit note total RM17.50 RM15.75
Balance owed RM108.50 RM110.25

The customer was charged RM3.15 per loaf after discount, so the credit must be 5 × RM3.15 = RM15.75. The habit is to read the price on the invoice, not the price in the catalogue.

Check yourself

An invoice shows 25 items at RM8.00 each, less 5% trade discount. The customer returns 4 items and receives a credit note. Find the amount still owed.

Answer

Before discount: 25 × RM8.00 = RM200.00. Discount 5% = RM10.00, so the invoice total is RM190.00.

Credit note: 4 × RM8.00 = RM32.00, less 5% (RM1.60) = RM30.40.

Amount still owed: RM190.00 − RM30.40 = RM159.60.

What to study next

Go on to connecting documents with transaction effects, then test yourself with the source documents practice set. The debit-credit transaction trainer lets you practise the entries on your own.

If you want a teacher to watch you read documents and post them, see online one-to-one Accounting tuition.

Common questions

What is the difference between an invoice and a receipt?

An invoice asks for payment and is issued when goods are sold, before the money arrives on a credit sale. A receipt confirms that money has been received. A credit sale therefore produces an invoice first and a receipt later, when the customer pays.

Who issues a credit note?

The seller issues it, usually when a customer returns goods or was charged too much. It reduces the amount the customer owes. The buyer keeps a copy as evidence that the debt is now smaller than the invoice says.

Does a credit note use the list price or the discounted price?

It uses the same price the customer was actually charged. If the invoice gave a trade discount, the returned goods are credited at the list price less that same discount. Crediting the full list price gives the customer too much credit.

Why do I need to read the document when the ledger already has the figures?

The document is the evidence behind each entry. Examiners give you a document and ask what it shows, so reading the quantity, price, discount and total correctly is how you reach the right amount before you post anything.

If the figures on a document never seem to match the ledger, a one-to-one Accounting lesson lets a teacher watch which line you read wrongly and fix it on your own questions.

  • Online one-to-one lessons for your child with an experienced teacher.
  • Your first class is a one-hour trial, from RM50. The fee is agreed before you book.
  • Happy with the teacher? Continue with lessons of about 1.5 hours. If not, ask for another teacher.