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.
- Before discount: 40 × RM3.50 = RM140.00.
- Trade discount: 10% of RM140.00 = RM14.00.
- Amount owed: RM140.00 − RM14.00 = RM126.00.
Five loaves arrive damaged, so Seri Bakery issues a credit note. The same 10% discount applies.
- Before discount, the returned loaves: 5 × RM3.50 = RM17.50.
- Less 10%: RM17.50 − RM1.75 = RM15.75.
- 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.