Wednesday, 12 September 2012

Process the following transactions: Sales, Purchases, Returns, Payments, Receipts


What are sales?
For any firm sales are the lifeblood of the company. No sales equals no profit which leads to the company being bust. 
There are two types of sales. Credit sales and cash sales. With cash sales the company obtains the money right away. However with credit sales the company gets the money in theory. In other words it is recorded in the accounts yet actually obtaining the money might take 30-60 days or even longer!

This is the sales process in terms of interacting with the customer

How to process sales?
This starts of with the customer ordering goods/services of a company. At the end of the transaction the company receives the cash from the customer. This is how the process works below. 

Here is the inputs of the sales process.
1. Sales Order. Also known as a SO. This is issued by the company to their customer. 
2. Sales Invoice. This is a bill/document that is issued by the company to its customer. The document states how many products are ordered and the price for those products or services.
3. Remittance Advice. This is a document that informs the company that the customer has paid its bill/invoice. This is of course not mandatory but seen as a act of goodwill to the company.
4. Shipping Notice. This lets the customer know the goods/services are on there way. For example Amazon send emails detailing when the products should arrive to its customers.
5. Debit/Credit memo. This is issued for any sales returns. The debit memo increases the amount that the customer owes if the bill was incorrectly added. The credit memo is exactly the opposite of a debit memo. It reduces the bill of the customer.

Here are the outputs of the sales process.
1. Customer Billing Statement. This is sent to the customer who has received the invoice but has not paid it. This also includes customer activity and sales returns if there is any
2. Accounts Receivable Ageing Report. This is a periodic report that records how long an invoice has being outstanding.
3. Bad debts report. If the customer has not paid the invoice the company must report this as a bad debt.
4. Cash Receipts Forecast. Information is gathered from revenue transactions that will be put into this forecast.
5. Customer Listings. This will detail the customers contacts, billing address and customer codes.

Click on these videos to learn more about the sales process.

The Sales Process

Uploaded by  on 26 Jun 2008

Invoice and Trade Finance Sales Process: How it works

Published on 6 Jun 2012 by 


What are purchases?
A purchase is obtaining goods or services acquired by the company to enhance or achieve the objectives of the business. Typically it involves money being exchanged for the good/services.

A diagram of the purchase transaction

What is the purchase process?

1. What does the company need? The company must identify what it need in order to achieve it goals on becoming a well run company. Purchases include machinery, land motor vehicles etc.
2. Research the product/service. The company will research the product/service they are looking for. Research might include on the internet, word of mouth, books etc.
3. Evaluate your options. The company will choose the product/service is right for them and which is not the best product/service. It might be the right product/service is the correct choice for them.
4. Chose which product/service to buy. Once you have chosen the product, there might be several suppliers. The company's job is to pick the right supplier. After this stage the company will put in a purchase order to that supplier. The purchase order will either be paper or electronic based.
5. Purchase the product/service. Once the order is sent, the invoice will be sent by the supplier.
6. Evaluate the purchase. Once the product/service has been purchased the company will evaluate if the choice was the right one or not for the company.

Check out this video to learn the learn steps of the purchase process:

Key steps of the Purchasing Process

Uploaded by  on 13 Sep 2010

Sales and Purchase Returns

Click on this link to learn about sales and purchase returns.

Check on this video to learn more about sales returns:

Sales Returns and Allowances - Ch. 5 Video 6

Uploaded by  on 21 May 2010

View this video to learn more about purchase returns:

Purchase Returns and Allowances- Ch. 5 Video 3

Uploaded by  on 21 May 2010


Check this link out to learn about receipts in accounting:


What are payments?
Payments are used to pay for items that were obtained from another party. 

How can you make payments?
There are a few types of payments. These include cash i.e. physical money which a person can touch such as a bank note or coins. 
Credit can also be used to make payments by using a credit/bank card. You cannot see or touch credit. It is only a number in a bank account.

Click on this link to learn about  the different payment systems:

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