Credit transaction

• Credit transactions


  When a service is performed or goods are exchanged but the cash relating to the transactions is not exchanged until some later date
• Customer


  Owes a debt to the provider/seller
• Credit transactions


  Where the services or goods are provided now and the payment is made at a later date
• Transaction


  An exchange of goods or services for some other asset
• Invoice


  Verifies that the transaction occurs satisfying the qualitative characteristics of faithful representations
• Source documents for credit transactions


  • When a credit sale is made, the business will issue a tax invoice to the customer
  • Source documents are vital in ensuring the verifiability of accounting reports
  • By authenticating each transactions
  • Source document ensure that the reports provide a faithful representation are free from bias
• Invoice


  A source document and tax invoice that identifies the name of the supplier, the name of the customer, the terms of the sale/purchase, the type, number and value of items that have been supplied, the GST on the sale, and the total amount owing to the seller
• Credit transaction


  The customer will not pay the cash on the day the sale is made
• Accounts receivable


  Customers that owe/have debt to a business they obtained services or goods on credit
• Accounts payable


  Suppliers that the business owes because they obtained service or goods on credit
• Credit sale


  A transaction where the service or goods are provided now and payment is required at a later date
• Credit purchase


  A transaction where the service or goods are received by the business but payment for the service or good are made later
• Sales invoice


  A source document that verifies a credit sale of inventory
• Purchase invoice


  A source document that verifies a credit purchase, usually of inventory
• Credit sale or credit purchase


  Depends on which entity for whom we are accounting
• Recording credit sales in the sales journal


  1. Date

  2. Account receivable

  3. Invoice number

  4. Fees

  5. GST

  6. Total accounts receivable
• GST does not need to be recorded when you're receiving money from an accounts receivable due to it being recorded at the time of sale
• The GST is recognised and reported at the time of the sale
• The sales invoice must show all the information necessary for it to be classified as a tax invoice including the selling price of the service, the amount of GST and the total invoice price
• Accounts receivable record


  To help keep track of a business accounts receivable
• GST on credit fees has no effect whatsoever on profit because it does not affect the fees revenue earned
• GST on credit fee is levied on behalf of the ATO and so must be forwarded to the ATO at some time in the next 12 months
• Strategies to improve accounts receivable turnover


  • Offering discounts for quick payment of invoice (2/7, n/30)
  • Issuing invoices at the time of sale
  • Sending reminder notices
  • Extensive credit check before offering credit terms to customers
  • Using a debt collection agency
  • Threatening legal actions
• Recording credit purchases in the purchases journal


  1. Date

  2. Accounts payable

  3. Invoice number

  4. Inventory of materials

  5. GST

  6. Total accounts payable
• The GST incurred on credit purchase will increase the debt owed to the account payable, It will not affect the valuation of the inventory of materials
• Any GST the business is charged on it own purchase can be deducted from it GST liability
• Credit fee


  A transaction that involves the provision of a service to a customer who is not required to pay until a later date