Time Tracer Ltd - Publishing

ACCOUNTING INSIGHT

2nd Edition by Edwin Olima FCCA

ISBN 0-9543820-1-3

 

 

 

 

 

 

 

 

 

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Businesses have to spend money to enable them carry out their activities. Many businesses will receive invoices from their suppliers detailing what has been purchased and also its value. In this chapter you will create a list of such invoices (purchase invoices ) from your Work Pack:

 

Step 1.    Arrange your purchase invoices  in the order of the date of invoice starting with the earliest first (Work Pack, page 31 ).  Once again, this has been done for you in the work pack. When using accounting software in practice this step would not be necessary.

 

Step 2.    List and analyze the purchase invoices as shown in the example below. Use the analysis paper  provided for purchase invoices (Work Pack, page 45 to 49 ).

 

Ensure that you analyze out the net value of the invoice under its respective expense type  as per the example below. Where the purchase invoice does not show any VAT or a VAT number, then the net amount is equal to the gross amount.

 

Mark each invoice with an E after you have entered it on your analysis paper . This avoids double counting .

 

Purchase Invoice Analysis Example

 

DETAILS OF PURCHASE INVOICES

PURCHASE INVOICE ANALYSIS

AMOUNTS PAID AND OUTSTANDING

Date

Inv. No

Supplier

Gross

VAT

Net

Goods

Phone

Ins.

Paid

Outstanding

25/02/01

7895

Computers

1175

175

1000

1000

 

 

 

 

12/3/01

5426

Call Ltd.

235

35

200

 

200

 

 

 

13/4/01

6235

Insure Ltd

250

-

250

 

 

250

 

 

 

Step 3.    Once you have listed all your purchase invoices , total the Gross , VAT , Net, and the expense type analysis columns at the bottom of the list.

 

 

You have now created a list of the types and values of the purchases for the period.

 

Note that net purchases   represent the value of goods  and services that flow into your business.  Purchase invoices are also known as bills.

 

The VAT  is the tax payable on the net purchases  (purchase VAT). Purchase VAT is usually deducted from the sales VAT that is payable to the government as explained in Chapter 1 above.  This purchase VAT can therefore be considered as a flow into the business (see Chapter 7 as well).

 

The summary also shows you who the business owes money to and what it is owed for and for this reason it is also called a creditors list.

 

Note that creditors  represent cash that will flow out of your business.

 

Compare your list to the one in the answer section at the back of the book.

 

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