What is a cheque?

A cheque is a written order to a bank to pay a stated sum of money to

the person or business named on the order.

• Payer / drawer – the person who writes or draws the

cheque
• Payee – The person in whose favour the cheque is written
• Drawee - the drawee is whichever bank the drawer (i.e.,
the payer) uses. This bank is responsible for removing
money from the drawer's account to pay whichever checks
the account holder issued. For example, if your friend
writes you a check from her bank account at Wells Fargo,
Wells Fargo is the drawee.
Routing number is the Bank or Financial Institution that issues the cheque’s code
number
Invoice
• An invoice is a document that is issued by a business or supplier of goods on
credit showing details, quantities and prices of goods supplied.
• The trade discount is included in the invoice.
• Trade discount is the reduction in the price of goods in line with the number
of goods bought. Trade discounts are used by businesses to increase the
number of goods bought. (bulk buying)
• Trade discount is also given to business of the same kind. For instance a
laptop distributor buys laptops from another laptop distributor at a trade
discount so that he will be able to sell at a profit.
• In some instances, the trade discount will increase with increase in quantity.
Like 2.5% for purchase of 500units, 5% discount for 1000 units purchased
and so on.
• Difference between trade and cash discount
Cash discount is given by a supplier of goods to a credit customer when
the customer makes the payment within set time frame.
For instance 2.5% cash discount on all payments made within 1 month
of purchase.

Cash discount encourages the debtors to within the set period. So the
supplier of goods gets the money faster

**Trade discount encourages purchasers to buy bigger quantities.

Remember when writing definition discounts you CAN’T write trade
discount is DISCOUNT given to…. It should be reduction
What is there on an invoice?

• The name and address of the supplier

• The name and address of the customer
• The date
• Full details, quantities and prices of the goods supplied
• Trade discount if allowed
Sample question
Harbajan sells goods on credit to Muththu and issues an invoice.

Account to be debited and credited in Harbajan’s books:

Sales a/c (Nominal Ledger) credited

Muthu a/c (Sales Ledger) Debited

Account to be debited and credited in Muththu’s books:

Purchases a/c (Nominal Ledger) debited

Harbajan a/c (Purchases Ledger) credited
Debit Note
• A debit note is issued by the credit customer to request a reduction
on the invoice received.

This may be due to :

• Overcharging in the invoice
• Return of faulty goods
• Return of goods that are not according to the order made
• Shortages in goods
What is there on an Debit Note?

• The name and address of the supplier

• The name and address of the customer
• The date
• Full details, quantities and prices of the goods returned or overcharged
• Trade discount if allowed

• No double entry is made in the customers’ or Suppliers accounting books

for the issue of a debit note.
• A debit note is simply a request made by the customer to reduce the
value on the invoice issued.
Credit Note
• A credit note is issued by the seller of goods on credit to notify a reduction in the value of the
invoice already issued.

What is there in a credit note?

• The name and address of the supplier

• The name and address of the customer
• The date
• Full details, quantities and prices of the goods returned or overcharged
• Trade discount if allowed

• Credit notes are sometimes printed in red

• Customer receives the original and uses it to record the purchases returns
• Supplier keeps the copy and uses it to record the sales returns in his books
Sample question
A Credit note was issued by Harbajan, to Muththu for goods returned that was
bought on credit from Harbajan.

Account to be debited and credited in Harbajan’s books:

Sales returns a/c (Nominal Ledger) Debited

Muthu a/c (Sales Ledger) Credited

Account to be debited and credited in Muththu’s books:

Purchases Returns a/c (Nominal Ledger) Credited

Harbajan a/c (Purchases Ledger) Debited
 Statement of accounts

• No entries are made in the suppliers or customers books when an accounting statement is issued.
• It is simply a document that a supplier sends to the customer to with the outstanding balance to be
paid.
• The last value shown in the balance is the amount owed by the customer to the supplier of goods.
Receipt

A receipt is a written acknowledgement of money received and acts as

a proof of payment. When a customer pays money for the goods he is
provided with a receipt.

• When businesses receive cheques for payments usually a receipt is

not issued because the cheque acts as the proof of payment.

Invoice and receipt difference

Invoice is issued when goods are sold on credit. Receipt is issued when
goods are bought paying by cash.
• Try the exam style question on the end if you have any issues just
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