CFM – Professional in Financial and Management Training

Chapter overview
1. Types of business
transactions
2. Documenting
business
transactions
3. Invoices and
credit notes
Chapter 1: Business 4. Discounts, rebates
and allowance

transactions and 5. Sale tax

6. Contract law
documentations 7. Storage of
information

Lecture: Ngo Nhu Vinh

2011
2 Chapter 1: Business transactions and documentations

1. Types of business transactions

• Cash transactions: the one where buyer pays cash to seller at the time the
goods and service are transferred.
• Credit transactions: the one where buyer pays cash to seller after the time
the goods and service are transferred.
2. Documenting a business transaction
2.1. External document
Example: Kristine wants to buy goods ( photocopy machine) from Stephen’s
Company. She wrote a letter of inquiry to Stephen’s Co. Stephen then sends back
a quotation to Kristine. If she wants to buy (ie. Agree with the price and quality of
the goods confirmed by Stephen) she send Stephen a purchase order. After that
they signed on the contract stating that Stephen will sell the machine of $3,500 to
Kristine. When receiving the machine, Kristine sign on a delivery note and receive
invoice from Stephen. By mistake, the amount in the invoice is $4,000. Finding out
the error, Stephen issue a credit note to Kristine. When the payment is due,
Kristine issues a cheque to Stephen to settle the transaction.
Find out the external documents in the example above ?
2.2. Internal documentation
• Inventory lists
• Supplier lists
• Time sheet
• Purchase order form
• Good received notes
3. Invoices and credit note
3.1. Invoice
• Invoice is a demand for payment

• It is created when there is sale or purchase on credit.

3.2. Credit note and debit note

• Credit note is used by a seller to cancel part of or all of previously issued
invoice.
• Debit note is issued by buyer to request for credit note.
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4. Discounts, rebates and allowances

4.1.Discount
Trade discount Cash discount
• You may get trade discount • You may get trade discount for
when you buy in bulk or when early payment
you are an important/ regular • It is a reduction in the
customer. amount of money payable to
• It is a reduction in the supplier.
amount of money demanded
from a customer

• If you are the seller, you give discount to your customer. There will be
discount allowed.
• If you are the buyer, you get discount from your customer. This is you
discount received.
4.2. Rebates and allowances
• A rebate is an amount paid by way of reduction, return, or refund on what
has already been paid or contributed. It can be a cheque for the calculated
rebate amount or it can be a reduction in the bills for the following year.
• An allowance: if a certain number of units are ordered at one time, then a
few extra units are given free of charge.
5. Sale tax
5.1. Calculating sale tax
• Net price : the amount after deduction trade discount and cash discount

• Gross price = Net price + sale tax

• Sale tax = Net price x tax rate

• Net price = Gross price/ (1 + tax rate)

• Example: The gross price of product A is $120 and the net price of product
B is $270. Calculate the sale tax charged on each product if the sale tax rate
is 17.5%.
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5.2. Input and output sale tax

Input sale tax Output sale tax

• arises on purchases. • arises on sale
• Refund from government • Pay to government

Example
Jessie buy goods for $690 net of sale tax. He also sell goods for $1,005 including
sale tax. If the tax rate is 17.5%, what is the amount Jessie must pay to the
government?
5.3. Discount and sale tax
• Sale tax is calculated on the discount price regardless of whether the
discount is actually taken.
• Example: Leisle buys goods for sale costing $15,000. She can get a cash
discount received of 5% for payment within 15 days. Calculate the sale tax if
the tax rate is 17.5%.
6. Contract law
• In law, a contract is a binding legal agreement that is enforceable in a court
of law. That is to say, a contract is an exchange of promises for the breach of
which the law will provide a remedy .
• In UK, they have Sale of Goods Act for contract law
• In Vietnam, we have Commercial Law 2005.
7. Storage of information
7.1. Retention policy
• There is a constant demand for information storage within the organisation.(
as proof in law case, internal/external audit requires, helps in projection,...)
• Files of data may be temporary, permanent, active or non- active.
• When information is non active, it is not thrown away. It can be
microfilmed, archived or securely destroyed.
• Retention periods vary under different laws and different types of business.
A company’s retention policy sets down how long different kinds of
information are retained. In the UK, Companies Acts regulates about
retention periods.
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7.2. Data protection

• Personal data are info about a living individual so that individual can be
identifiable from the data. Data about an org are not personal unless they
contain info about their members.
• Data controllers are org or individuals who control the contents of files of
personal data and the use of personal data which are processed.
• In the UK, storage of information is regulated by Data Protection Act.
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SUMMANRY OF CHAPTER 1

SAMPLE OF DOCUMENTATIONS
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1. CASH AND CREDIT TRANSACTION

TRANSACTIONS CASH CREDIT

Receipt of goods worth $140 from a supplier together
with an invoice for that amount
Payment of $278 by cheque for a purchase at the till
Sending of an invoice for $135 to the payer of the deposit
for the remaining value of the goods
Sale of goods for $14, payment received by credit card

2. DOCUMENTS

DESCRIPTION DOCUMENT
Request to supplier to supply goods
Notification by supplier of the amount due to
EXERCISE

be paid for the goods

Notification by purchaser to the supplier of the
amount enclosed as payment
Cancellation of an amount due to supplier
Record of a cash sale given to a customer
Require supplier to issue credit note

3. DISCOUNT AND SALES TAX

3.1. DISCOUNT

D is a supplier of CFM.
D offer 5% trade discount, 10% cash discount for immediately payment or 5% cash discount
of all items paid within 20 days of purchase.

In 1/2/2010, CFM purchase $1000 of goods from D (without discount)

What amount of money CFM has to pay D if

a. CFM pay money on 1/2/2010
b. CFM pay money on 20/2/2010
c. CFM pay money on 21/2/2010
d. CFM pay money on 37/2/2010

3.2. SALES TAX

1. A product has a net price of $120 and sale tax is to be at 10%, what is sales tax ?
2. A product has a gross price of $ 282 and sales tax is 17.5%, what is sale tax ?
3. A company sell goods for $35,250 include sales tax in a quarter. It buy goods for $32,900
including sales tax. What amount will it pay or to receive from the govermnent ?
8 Chapter 1: Business transactions and documentations

4. MULTY PER CHOICE QUESTIONS

1. Which of the following transaction is a credit transaction ?
a. Sale of goods for cash
b. Sale of goods and receipt of a cheque
c. Sale of goods with payment due in 60 days
d. Receipt of a cheque for goods sold 40 days ago
2. A credit note is a document:
a. Acknowledge a purchase on credit

MUPLY PER CHOICE QUESTIONS

b. Giving reference from an agency detailing the creditworthiness of a new customer
c. Issued when a deposit is paid on goods
d. Which cancels out all or part of a sales invoice.
3. Which of the following is not a internal document for purchase ?
a. Supplier list
b. Delivery note
c. Goods received note
d. Purchase order
4. What business document provides proof of payment for a business transaction?
a. Claim
b. Receipt
c. Debit note
d. Invoice
5. A good received note is used by a business to ?
a. Order goods from a supplier
b. Record the receipt of goods from a supplier and to input information to the business
accounting system
c. Instruct the accounts department to pay the invoice for the goods.
d. Notify the supplier that goods have been received safely
6. Which of the following correctly describes the function of a credit sales invoice which a
customers has received from a supplier?
a. It is a receipt for money paid
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b. It is a record of goods purchased by the customer

c. It is a demand for immediate payment by the supplier
d. It is a demand for payment within an agreed time from supplier
7. Which of the following correctly describe the term “debit note”?
a. It is issued by a customer to a supplier to request a credit note
b. It is issued by a supplier to a customer to request a credit note
c. It is issued by a customer to a supplier to cancel an invoice received
d. It is issued by a supplier to a customer to demand payment in full for goods supplied

MUPLY PER CHOICE QUESTIONS

8. Manish buys goods on credit from lisa but find that some of them a faulty. What documents
would Manish return to Lisa with the faulty goods ?
a. Debit note
b. Purchase invoice
c. Statement
d. Sales invoice
9. A invoice is received from a supplier starting “net 60 days”. What does it mean ?
a. Discount may be deducted if the invoice is paid within 60 days of the invoice date
b. The invoice must be paid within 60 days of the invoice date
c. The supplier has allowed 60 days for payment from the date of the invoice
d. The invoice must be paid within 60 days of the date of delivery
10. Why would a business send out a debit note?
a. It is issued by a supplier to a customer to demand payment in full for goods supplied
b. It is issued by a customer when good are delivered
c. It is issued by a customer to supplier to cancel an invoice received
d. A customer wants a supplier to issue a credit note
11. What document is usually sent every month from the supplier to the customer, listing all the
transactions between them during that month?
a. Invoice
b. Statement
c. Receipt
d. Credit note
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12. Which of the following is not a source document in an accounting system ?

a. A sale day book
b. A till invoice
c. A purchase invoice
d. A petty cash voucher
13. What is purpose of a purchase invoice ?
a. To claim back the VAT
b. To identify the goods bought

MUPLY PER CHOICE QUESTIONS

c. To record how much is owed to the creditor
d. To record how much is owed to the debtor
A. a,b,c only
B. All
C. b and c
D. a and b
14. In purchasing procedure, which document will usually follow the goods received notes?
a. Delivery note
b. Invoice
c. Statement
d. Advice note
15. A business sold goods to the value of $500 (net) to Harper Ltd. What would be the debit to
Haper Ltd’s account if sales tax is payable at a rate of 17.5% ?
a. $412.50
b. $500.00
c. $587.50
d. $606.06
16. A summary of the transactions of Ramsgate, who is registered for VAT at 17.5%, show the
following for the month of Augst 2009
Output $60,000 (inclusive of VAT)
Input $40,286 (inclusive of VAT)
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At the beginning of the period Ramsgate owed $ 3,400 to the government, and during the
period he has paid $2,600 to them
At the end of the period the amount owing the government is
a. $3,700
b. $3,930
c. $4,400
d. $5,300
b. A VAT registered business sends out a sales invoice for goods with a list price of

MUPLY PER CHOICE QUESTIONS

$1,239.77. A trade discount of 10% is given and a settlement discount of 5% offered.
The good rated for VAT at 17.5%. What is the VAT charged on the invoice?
a. $185.50
b. $195.26
c. $205.03
d. $207.19
17. Scott Ltd is preparing an invoice for a machine. Its list price is $12,000 + sale tax at 17.5%.
A discount of 2% is offered, but only if payment is made within 30 days. How much sales tax
should be shown on the invoice ?
a. $2,100
b. $2,058
c. $1,787
d. $1,751
18. Megan was invoiced for $100 less 5% trade discount and a settlement discount of 2.5%
Megan’s supplier is not registered for sale tax ?
If Megan pays the invoice late, how much will she pay ?
a. $92.50
b. $92.63
c. $95.00
d. $7.50
19. Victoria sells materials to Fraser for $240 plus VAT. Fraser manufactures goods from these
materials and sells them to customer, Helen, for $360 plus VAT. VAT rate is 17.5%
How much VAT is paid to the government by each party the transactions ?
12 Chapter 1: Business transactions and documentations

a. Victoria pays $42

Fraser pays $63
b. Fraser pays $42
Hellen pays $63
c. Victoria pays $42
Fraser pays $21
d. Fraser pays $42

QUESTIONS
Helen pays $21

CHOICEQUESTIONS
20. Charies sells goods for $1,200 and buys goods for $810. Both transactions include sales tax
at 17.5% in the prices given. How much will Charles to pay to the tax authorities in respect
of these two transactions ?
a. $58.09
b. $68.25

PERCHOICE
c. $178.72
d. $210.00
21. Output tax is ?

MUPLYPER
a. VAT on purchase
b. VAT in sales

MUPLY
c. Amount payment to the government
d. Amount received from the government
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