Course title: Introduction to Finance FNA101

PURCHASE AND SALES OF GOODS:

a. PURCHASE OF GOODS
Purchases in accounting are the buying of goods with the prime intention of selling. It
gives information to as to the type, quality, quantity and cost of goods bought. Goods
bought with the purpose other than direct selling such as for research and development
are added to inventory and allocated to research and development expends as they are
used. On the other hand, equipment bought for research and development are not added
to inventory but are capitalized as assets.
1 Goods:

The (OHADA) plan defines goods as any object or item, material or supplies acquired by an
enterprise with the aim to re-sell without transformation or changing the form.

2 Goods withdrawn from the stock of sales:

Goods withdrawn for personal or family use must be excluded from the cost of goods bought for
sale.

BASIC DOCUMENTS CONCERNING PURCHASES

These are documents prepared by the buyer and sent to the seller during purchases. The
documents include;

1. Letter of Inquiry: it is a commercial document written by a prospective buyer to the seller

asking for info goods such as the availability of the desired goods, their prices, conditions of
sales, and delivery.
Specimen or Sample of a Letter of Inquiry

Buyer’s Address
Our ref….Your ref…….
Seller’s Address
Sir/Madame
An Inquiry
We learn from…………………that you are a trader in ……………….. and wish to know
whether you have the following items in stock…………………….please state their prices
and mode of delivery. We will be happy if you treat this as a matter of urgency.

Yours faithfully
Signature
(Company Stamp)
2. Quotation or price list: This is the response to the letter of inquiry to by the seller to the
buyer giving answers to the questions asked. When the buyer receives a question, he can
then place an order.
3. An Order: It is a document sent by the customer (buyer) to the supplier (seller) asking to the
supply of goods or services he needs.
Specimen of Sample of an Order

Customer address
Our ref…….Your ref…….
Suppliers address

Order №………
At ……….On……………….
Reference Description Unit Quantity Unit price Observation

Signature
Company Stamp

4. Purchase invoice or Invoice: It is sent by the seller to the buyer showing him the details and
calculations he has developed. It has the following importance.
1. An invoice helps the buyer to verify the calculations made by the buyer.
2. It acts as a proof before the law that purchase conditions were executed. This is in the
case of a disagreement or contestation.
Specimen of Sample of an Invoice

Supplier Address

Our ref….. Your ref………

Customer’s address

Customer code……… Invoice number

At ……….On……………….

Reference Description Unit Quantity Unit price Observation

Net payable

Signature
 Company Stamp
EXAMPLE:

On the 14/7/2019 Tom PLC Po Box 179 Douala Tell: 333667788 sent an order number 022 to
AMPI SA Po Box 088 Limbe Tell:876767777 for the following items.

 150 cartons of sugar ref AZ15 an 20000frs each

 200 bags of cements ref URM 14 at 1000fre each
 900kg of Red fresh waters fish ref FWF21 at 5000frs each

On the 16 of July 2019, an invoice number 018 was received.

Work required:
a. Prepare an order

b. Show the purchase invoice number 018 from the seller

Solution

a) Presentation of an order

Tom PLC
Po Box 179
Douala
Tel: 33667788
AMPI SA
Po Box 088
Limbe
Tel: 876767777

Order number 022

Douala, the 14/07/2019

Ref Description Unit Quantity Unit price observation

AZ15 Sugar carton 150 20000frs
URA14 Cement bag 200 10000frs
FWF21 Fresh water kg 100 5000frs Red

Signature (Tom plc)

Stamp (Tom plc)
 b) Presentation of an Invoice

AMPI SA
Po Box 088
Limbe
Tel: 876767777
Tom PLC
Po Box 179
Douala
Tel: 33667788

Invoice Number 018.

Limbe, the 16th July 2019.

Ref Description Unit Quantity Unit price observation

AZ15 Sugar carton 150 20000frs 3,000,000
URA14 Cement bag 200 10000frs 2,000,000
FWF21 Fresh water kg 100 5000frs 4,500,000
Net Payable 9,500,000

Signature (AMPI SA)

Stamp (AMPI SA)

Accounting Recording of Purchases

There are 2 methods of recording purchases namely; Perpetual and Periodic inventory method

i. Perpetual Inventory Method. It is the organization of stock in an enterprise

whereby the recording of movements permits one to know at the moment the existing
quantity of stock, and their cost without necessary going to the store or court. In this
method, there are two stages of recording.
a. Record the actual purchases with the cost price considering the nature of goods by
debiting A/C 601 with the credit ofA/C 401 to show invoice received and then
debit A/C 401 with the credit of the means of payments (A/C 571, A/C 521)
which are cash and bank account respectively.
 b. Record the storage of goods in the store house or warehouse with purchases cost
by debiting A/C 311(stock of goods) and the credit of A/C 6031(stock of goods
variation). E.g.

On the 13 of June 2018, Kenfack ltd bought goods by cash 900,000 FRS. Do the
accounting recordings under the perpetual inventory method.

ACCOUNTING RECORDING OR PURCHASES

Debit Credi 13/06/18 Debit Credit

601 t Purchase of goods 900000
Suppliers 900000
401 (Being invoice received)
13/06/18
401 Suppliers 900000
Cash 900000
571 (Being goods bought by cash)
13/06/18
331 Stock of goods 900000
Stock variation 900000
6031 (Being entry of goods into the
warehouse)
ii) Periodic Inventory Method

It is based on the principle of determination of goods sold at the end of the period. There
is only one stage in this process
c. The only stage. Record the actual purchases with the cost price considering the
nature of goods by debiting A/C 601 with the credit ofA/C 401 to show invoice
received and then debit A/C 401 with the credit of the means of payments (A/C
571, A/C 521) which are cash and bank account respectively.
a.
Example. On the 8th of august 2016 Ambe bought goods for 600,000 frs on credit. Do
their journal recording using periodic inventory.

Debit Credi 08/08/16 Debit Credit

601 t Purchase of goods 600,000
Suppliers 600,000
401 (Being invoice received)
Date of payment
401 Supplier 600,000
Cash 600,000
571

1. Commercial Reductions
There are reductions on the purchase price of a commodity, good or service. They include;

i. Rebates. This are reductions made on the purchase price of a good for wrongs
supplies, or when the goods received are not in conformity with the order or when
defective goods are received.
ii. Trade Discount received. This is reductions made as a result of bulk purchase of
fidelity. It is expressed in % and calculated successively.
iii. Bonus received. The customer obtains the reduction or gift as a result of being
faithful or to maintain good relationship. It is calculated on the number of transaction
realized with the same customer within a given period. It can be in cash or kind.
Notes: the above commercial reductions are never recorded when found on an
invoice.
iv. Commercial net. This is the amount of balance are obtained after subtracting the
commercial reductions.
2. Financial Reductions
Financial reductions include cash discount.
i. Cash discount received. This is reductions your suppliers allow you to deduct
from your purchase invoice for prompt payment or payment made within a
stipulated date. It is credited in a secret account of A/C 773 (cash discount
received.

Example.

Akunde ltd Po Box71 Bamenda bought good for 2,000,000 FRS and benefited from the
following sales conditions. Rebates 10%, Trade discount 5%, cash discount 2%.Work required.
Prepare an invoice and do the recordings for Akunde ltd in his books as at the 31st /12/19

Description Amount

Gross amount 2,000,000

10
Rebates = ∗2000000 -200,000
100
1st commercial net 1,800,000
5
Trade discount = ∗1800000 -90,000
100
2nd commercial net 1,710,000
2
Cash discount = ∗1710000 -34,200
100
Net Payable 1,675,800

Accounting recording

Debit Credi 31/12/19 Debit Credit

 601 t Purchase of goods 1,710,000
Suppliers 1,675,800
401 Cash discount received 34,200
773 (Being invoice received)
31/12/19
401 Supplier 1,675,800
Cash 1,675,800
571 (being cash payment of goods)
31/12/19
331 Stock of goods 1,710,000
Stock variation 1,710,000
6031 (Being entry of goods into the
warehouse)

Example 2.

Mary bought goods worth 3,000,000 and had the following deductions. Trade discount 2%, 3%,
cash discount 5%. Work required prepare an invoice and show the accounting records.

Solution

Description Amount

Gross amount 3,000,000

2
1st trade discount =( ∗3000000) 60,000
100
1st commercial net 2,940,000
2nd trade discount = ¿2940000) 88,200
Commercial net 2,851,800
5
Cash discount = ( ∗2851800) 142,590
100
Net payable 2,709,210

Accounting recording
 Debit Credi 31/12/19 Debit Credit
601 t Purchase of goods 2,851,800
Supplier 2,709,210
401 Cash discount received 142,590
773 (Being invoice received)
31/12/19
401 Supplier 2,709,210
Cash 2,709,210
571 (Being cash payment of goods)
31/12/19
331 Stock of goods 2,851,800
Stock variation 2,851,800
6031 (Being entry of goods into the
warehouse)

PURCHASE OF INVOICE WITH ADDITIONS

I. Value Added Tax (VAT). It is an indirect tax on consumption. It affects the

expenditures of individuals and enterprises. It is state budget. Example. On the 15 of
October 2018 Lewoh plc, Po Box 41, Lebialem bought goods for 4,000,000 and
benefited the following conditions; Trade discount 5%, cash discount 1%, trade
discount 3% VAT 19.25%. Prepare an invoice and do the accounting recording under
periodic inventory.
Solution

Description Amount

Gross amount 4000000

5
Trade discount = ( ∗4000000 ) -200000
100
1st commercial net 3800000
3
2nd trade discount = ( ∗3800000 ¿ -114000
100
2nd commercial net 3686000
1
Cash discount ( ∗3686000) - 36860
100
Financial net 3649140
19.25
VAT =( ∗3649140) +702459.45
100
Net payable = (702459.45+3649140) 4351599.45
Accounting recording
 Debit Credi 15/10/18 Debit Credit
601 t Purchase of goods 3,800,000
4452 VAT on purchases 702,459.45
Supplier 4,351,599.45
401 Cash discount received 142,590
773 (Being invoice received)
15/10/18 4,351,599.45
401 Supplier
Cash 4,351,599.45
571 (Being cash payment of goods)
15/10/18 2,851,800
331 Stock of goods
Stock variation 2,851,800
6031 (Being entry of goods into the
warehouse)

Transport on purchases (A/C 611)

This is the total cost on transport for goods purchased to reach the buyers premises. Example

On the 17 of October 2017, Bombay ltd, Po Box 15 Beau, bought goods for 6,000,000 and
benefited from the following conditions. Trade discount 10%, cash discount 5%, VAT 19.25%
and transport cost 120,000 FRS before VAT. Prepare an invoice and do the accounting recording
under perpetual inventory

Solution

Description Amount

Gross amount 6000000

Trade discount =¿) -60000
Commercial net 5400000
5
Cash discount ( ∗5400000) -270000
100
Financial net 5130000
Transport cost +120000
Total before VAT 5250000
19.25
VAT =( ∗5250000) +1010625
100
NET payable (5250000+1010625) 6260625
Accounting recording

Debit Credi 17/10/17 Debit Credit

601 t Purchase of goods 5,400,000
611 Transport 120,000
 4452 VAT on purchases 1,010,625
Supplier 6,260,625
401 Cash discount received 270,000
773 (Being invoice received)
17/10/17
401 Supplier 6,260,625
Cash 6,260,625
571 (Being cash payment of goods)
17/10/17
331 Stock of goods(5,400,000+120,000) 5,520,000
Stock variation 5,520,000
6031 (Being entry of goods into the
warehouse)

Assignment

On the 31st of December 2018, Eposi & sons bought goods from Arrey ltd worth 2,500,000.
Rebate 10%, cash discount 2%, trade discount 5% carriage paid 715,500 FRS. VAT inclusive.
Prepare an invoice and do the accounting recording in the books of Eposi & sons.

Solution

Description Amount

Gross amount 2500000

10
Rebate ( ∗2500000) -250000
100
1st Commercial net 2250000
5
Trade discount ( ∗2250000 ¿ -112500
100
2nd Commercial net 2137500
2
Cash discount = ( ∗2137500 ¿ -42750
100
Financial net 2094750
19.25
VAT on financial net ( ∗2093750 ¿ +403239.375
100
Transport VAT inclusive +715500
Net payable 3213489.375

Workings
For VAT inclusive = 715500
715500
Carriage VAT exclusive = =600000
1.1925
VAT ON carriage = carriage VAT inclusive - carriage VAT exclusive =
715,500 – 600,000 = 115500fcfa
Debit Credi 31/12/18 Debit Credit
601 t Purchase of goods 2,137,500
611 Transport 600,000
4452 VAT on purchases 5,187,393
Supplier 3,213,489.375
401 Cash discount received 42,750
773 (Being invoice received)
31/12/18
401 Supplier 3,213,489.37
Cash 5 3,213,489.375
571 (Being cash payment of goods)
31/12/18
331 Stock of goods(2,137,500+600,000)
Stock variation 2,737,500 2,737,500
6031 (Being entry of goods into the
warehouse)

SUPPLIERS PACKAGES CONSIGNED (A/C 4094)

The consignment of packages is an act where the customer keeps a deposited and obtained
containers from the supplier to ease the transportation of goods bought with an agreement that
the containers will be returned in good condition at the right time and the caution collected. The
consignment process is often higher than the purchase price of the containers. The customer
records on the debit side of (A/C 4094). That is supplier’s credit on packages consigned.

Example. On the 25th of October 2015, hand-to-hand construction ltd bought goods for
3,000,000, cash discount 2%, trade discount 5% carriage paid 95400 VAT inclusive, deposited
on containers 400,000. Prepare an invoice and do an accounting recording in the books of hand-
to –hand construction.

Solution
Description Amount
Gross amount 3000000
5
Trade discount =( ∗3000000) -150000
100
Commercial net 2850000
2
Cash discount = ( ∗2850000) -57000
100
Financial net 2793000
Packages consigned +400000
Amount before VAT 3193000
 19.25
VAT ( ∗2793000 ¿ +614652.5
100
Transport +95400
Net payable 3903305.25
Workings
For transport VAT inclusive = 95400
95400
Carriage VAT exclusive = =80000
1.1925

VAT ON carriage = carriage VAT inclusive - carriage VAT exclusive =

95,400 – 80,000 = 15,400fcfa

Accounting recordings

Debit Credi 25/10/15 Debit Credit

601 t Purchase of goods 2,850,000
611 Transport 80,000
4094 Packages consigned 400,000
4452 VAT on purchases 630,052.5
401 Supplier 3,903,305.25
773 Cash discount received 57,000
(Being invoice received)
25/10/15
401 Supplier 3,903,305.25
Cash 3,903,305.25
571 (Being cash payment of goods)
25/10/15
331 Stock of goods(2,850,500+80,000) 2,930,000
Stock variation 2,930,000
6031 (Being entry of goods into the
warehouse)

Exercise. On the 27 of October 2019, Akime bout goods from Nkoh. Gross amount 11000000,
trade discount 6%, cash discount 4% packages consign 200000 carriages paid VAT inclusive
715500. Prepare as invoice and do you accounting recording

Solution

Description Amount

Gross amount 11000000

6
Trade discount =( ∗11000000) -660000
100
Commercial net 10340000
 4
Cash discount = ( ∗10340000) -413600
100
Financial net 9926400
Packages consigned +300000
Amount before VAT 10226400
19.25
VAT ( ∗10226400 ¿ +1968582
100
Transport +715500
Net payable 12910482
Workings
For VAT inclusive = 715500
715500
Carriage VAT exclusive = =600000
1.1925

VAT ON carriage = carriage VAT inclusive - carriage VAT exclusive =

715,500 – 600,000 = 115500fcfa

Accounting recordings

Debit Credi 27/10/19 Debit Credit

601 t Purchase of goods 10,340,000
611 Transport 600,000
4094 Packages consigned 300,000
4452 VAT on purchases 2,084,082
Supplier 12,910,482
401 Cash discount received 413,600
773 (Being invoice received)
27/10/19
401 Supplier 12,910,482
Cash 12,910,482
(Being cash payment of goods)
571 27/10/19
331 Stock of goods10,340,000+600000) 10,940,000
Stock variation 10,940,000
(Being entry of goods into the
6031 warehouse)
Sales of goods

Sales is the exchange of those goods in which a business normally deals and which were bought
with the prime intention of reselling. The words sales must never be given to the disposal of
other items such as vans or buildings that were purchase to be used on permanent basis.

A sale therefore refers to the exchange of products or services for money, either paid for now or
in the future. When your business provides a product to a customer in exchange for
consideration, the business has made a sale and can report that sale on its financial statement.
Sales make up the beginning of the income statement and all expenses are subtracted from the
total amount of sales to show the profit from the business.

Basic documents concerning the sales of goods

1) A Quotation
It is a statement of current prices and conditions at which the supplier is willing to sell
goods or render services as requested by the customer in the letter of inquiry.
2) Price list
It is an internal document which presents the list of all items in stock and their prices. The
reply to a letter of inquiry is a quotation sent by the supplier to the customer stating only
the items asked by the customer.

Specimen of a quotation

Supplier’s Address
Our ref….Your ref…….
Customer’s Address
Sir/Madame
A Quotation
With reference to your inquiry dated ………… requesting for information about our articles.
We are happy to quote the items below. (
Quote the items and their prices line by line) eg
- Scanning machine, ref S4 at 20000frs each
- Duplicating machine ref B1 at 40000frs each etc.( state the conditions of sale) eg

Delivery to your premise is carriage at your charge or free and you are entitled to a discount
of …..%.
While looking forward to receive an order from you, we remain yours respectfully

Sales Manager
Signature
(Company Stamp)
1. Delivery note: It is a document made by the supplier to accompany the goods to the
customer. It states the type and quantity of goods dispatched to the customer.

Sample of a delivery note.

Supplier’s Address
Our ref………..Your ref…………
Customer Address
Delivery Note Number………….
At………………On…………….
Ref description unit Quantity Unit price Observation

For consignment use only.

2. An Invoice: It is a document presenting the detailed calculation of goods sold to the

customers. It is made up of
a. Sale invoice: When the supplier prepares an invoice, it is usually in 2 copies. A
copy (original) is sent to the customer and the supplier retains the duplicate copy.
This duplicate copy is known as the sales invoice.
b. Profoma invoice: It is a document sent to the customer asking for payments before
goods are delivered. This is when the supplier is dealing with the customer for the
first time or doubts the customer’s credit worthiness. It is always printed inn red to
differentiate it froth other products.
Importance of an invoice
- An invoice permits the seller to verify the calculations made on the good.
- It acts like a proof before the law that the sales conditions were excited. This is in the
case of contestation or disagreement.
- It is a source document for accounting recording.
3. Credit note: A credit note is a document sent by the supplier to a customer informing
him/her that his/her account has been credited in his books or enterprise. This document
may be sent for any of the reasons mentioned below.
 - When the customer returns goods or packages
- When deductions are allowed to him out of the original invoice
- When goods are over charged or less quantity sent.
4. Debit note: It’s a document sent by the supplier to a customer informing the customer
that his/her account has been debited in the supplier’s book. It is sent when goods are
undercharged or more goods are sent than those quoted on the original invoice.
It should be noted that both the credit note and the debit note have the same
specimen as an invoice.
Accounting Recording of Sales
There are 2 systems of recording sales of goods namely
- The perpetual or permanent inventory method and
- The periodic or intermittent inventory method.
a. The perpetual inventory method
i. Recording of sales

First Stage of recording: Record the exit or outgoing of stock with the purchase
cost by the debit of Account 6031 and the credit of Account 311.
Second stage: Record the actual sales by debit of Account 411 with the credit of
Account 701 to show the sales invoice sent. Then debit the means of payment
with Account 571/521 with the credit of Account 411.
Note: - At the end of the period, the difference between A/c 701 and A/c 601=+-
A/c 6031 which constitute the Gross Profit.
- A/c 6031 credited – A/c 6031 debit constitute the final stock.
Example:
On the 28 of Sept 2019 Kilua ltd sold goods 500000 FRS, cost of goods sold 450,000
FRS. Do the accounting recordings and determine the gross profit and the final stock.
Working:
Dr Cr 28/09/19 Dr Cr
6031 stock variation 450000
311 stock of goods 450000
(Being exit of goods from warehouse)
28/09/19
411 customer A/c 500000
701 sales 500000
(Being sales invoice send)
28/09/19
571 cash 500000
411 customer 500000
 (Being cash sales of goods)

b. Gross profit= sales – cost of goods sold

=500000 – 450000
= 50000 FRS

Periodic inventory method

It is based on the principle of the determination of the cost of goods sold at the
end of the period. Therefore periodic inventory does not permit the enterprise to follow
its profit and the movement of stocks in quantity and in value. It is only at the end of the
period that the enterprise determines its profit and the physical counting of stocks.
The recording of sales is done by debiting A/c 411(customer a/c) with the credit
of A/c 701(sales a/c) to show the sales invoice sent. When the customer pays the means
of payment is debited (a/c 571, or 521) with the credit of A/c 411.
Example: On the 17 Oct 2019 Ebai enterprise sold goods for 125000fr in cash. Do the
accounting recordings.

Dr Cr 17/10/19 Dr Cr
411 customer A/c 125000
701 sales 125000
(Being sales of invoice sent)
7/10/19
571 cash 125000
411 customer 125000
(Being cash sales of goods)

Sales discount granted

a. Commercial discount or reduction:
a. Rebates granted
It is exceptionally allowed on the previous agreed selling price of the
goods with the purpose that goods sent are not in conformity with the
order or when defective goods are sent.
b. Trade discount granted: It is granted by the supplier to the customer for bulk
purchase. It is expressed as percentages and calculated successively.
c. Bonus granted: The supplier grants this deduction to the customer to maintain
good relationship. It is calculated on the number of transactions realised with the
same customer within a given period. It can be in cash or kind.
The above deductions are never recorded when found in an invoice.
d. Commercial net: Is the amount or balance obtained after subtracting the
commercial deductions.
Financial Reductions
 a. Cash discount granted: This is a reduction granted by the supplier to the
customer for prompt payment or when the customer pays within a stipulated
date. It originates from financial transactions and is considered as interest
received to the customer while the supplier considers it as interest paid.
Note: Whenever cash discount is mentioned in a transaction, the mode of payment should
be cash or cheque.
b. Financial net: This is the balance obtained after subtracting the cash discount
from the commercial net.
Example:
On the 15 of Oct 2019 Kanu sold goods for 900000 FRS. Sales conditions
being trade discount 10% and 5%, cash discount 3%.
Work required
- Present the sales invoice and do the accounting recording considering that the means
of payment is by cash.

Gross Amount 900000

Trade discount (10/100*900000) -90000
1st commercial net =810000
Trade discount (5/100*810000) -40500
2nd commercial net =769500

Cash discount (3/100* 769500) -23085

Net payables =746415

Dr Cr 15/10/19 Dr Cr
411 customer A/c 746415
673 cash discount 23085
701 sales 746415
(Being sales invoice send)
15/10/19
571 cash 746415
411 customer 746415
(Being cash sales of goods)
Sales Invoice with additions
They are made up of VAT transport on sales, packages consigned to customers
a. State VAT invoice and sales A/c 443
It is 19.25% on sales value collected by the seller from customer during sales to
recover the Vat paid to a supplier during purchases and the difference between the
amount of VAT collected during sales and the amount of VAT paid during
purchases will be paid to the state.
Example:
On the 15th Oct 2018 Mary sold goods for 6000000 FRS by bank cheque and
granted the following discount.
Trade discount 4% and 3%. Cash discount 2% and VAT 19.25%.
Prepare an invoice and show the accounting recording in the books of Mary.

Gross amount 6000000

1st trade discount (4/100*6000000) -240000
1st commercial net =5760000
2nd trade discount (3/100*5760000) -172800
2nd commercial net =5587200
Cash discount (2/100*5587200) -111744
Financial =5475456
VAT (19.25/100*5475456) +1054025.28
Net payables =6529481.28

Dr Cr 15/10/18 Dr Cr
411 customer 6529481.28
673 cash discount 111744
701 sales 5587200
443 VAT receivable on sale 1054025.28
(Being sales invoice send)
 15/10/18
521 Bank 6529481.28
411 customer 6529481.28
(Being sales by bank cheque)

Transport on sales (A/c 612)

It is the total cost incurred on transport by the supplier for goods to reach the market or
customer’s destination. Here, there are 2 cases.
1st case
The supplier has a means (delivery van) to transport the goods to the customer’s
premises.
In this case, the supplier uses his own vehicles and the only expenses will be the driver’s
salary, fuel and maintenance of the vehicle. These expenses are recorded in the various expenses
account such as salary account fuel account etc. The account of transport will not be recorded.
2nd case
The supplier does not have a means (delivery van) to transport the goods to the
customer’s premises, he then contacts or pays a transporter to transport the goods. The amount
paid is debited in a/c 612 (transport on sales) and A/c 445 (VAT recoverable on transport) with
the corresponding credit of the means of payment.
Example:
On the 25 Oct 2018 Akongwe ltd sold goods for 3000000 to Enterprise Yiwili. The sales
conditions were as follows.
Trade discount 5%, cash discount 4%, transport cost for goods to reach the market 100000frs,
VAT 19.25.
Present a sales invoice and show the accounting recording.

Gross amount 3000000

Trade discount (5/100*3000000) -1500000
Commercial net = 2850000
Cash disc (4/100*2850000) -114000
Financial net =2736000
VAT (19.25/100*2736000) +526680
Net payable = 3262680

b. An invoice from the transporter

Gross amount 100000
VAT (19.25/100*100000) +19250
Net payable =119250
It should be noted that transport expenses will not appear on the sales invoice because the
customer is not charged to pay for the transformation. The seller takes responsibilities of the
expenses and considers it as after sale services which will be added to the cost price to have the
cost of goods sold.

Dr Cr 25/10/18 Dr Cr
612 Transport 100000
4453 VAT recoverable on transport 19250
571 cash 119250
(Being payment of transport)
25/10/18
411 Customer 3262680
673 Cash discount 114000
701 Sales 2850000
443 VAT on sales 526680
(Being sales invoice send)
25/10/18
571 Cash 3262680
411 Customer 3262680
(Being sales by cash)

3rd case
Transport expenses carries out by the supplier on customer’s behalf
1st scenario when the supplier uses his own means (vehicle)
 Here, the supplier uses his delivery van to transport the goods and charge the customer to
pay for the transportation. The supplier credits (A/c 707) (accessory income)
Example
On the 10th Nov 2019 Yohan ltd sold goods to Ndi. Gross amount 1500000, and the sales
conditions were trade discount 5% and transport invoice 180500 (uses his own means), VAT
19.25.
Gross profit on sales 20%
Work required
a. Determine the gross profit and the cost of goods sold.
b. Do the accounting recording in the supplier’s book.

a. Sales 1500000
Gross profit (20/100*1500000) 300000
Cost of goods =sales – profit =1200000

Gross amount 1500000

1st trade discount (5/100*1500000) -75000
1st commercial net =1425000
2nd trade discount (2/100*1425000) -28500
2nd commercial net =1396500
Transport cost +180500
Amount before VAT =1577000
VAT (19.25/100*1577000) +303572.5
Net payable =1880572.5

Dr Cr 10/11/19 Dr Cr
6031 stock variation 1200000
311 stock of goods 1200000

(Being exit of goods out of warehouse)

10/11/19
411 Customer 1880572.5
701 Sales 1396500
707 Accessory income 180500
443 VAT on sales 303572.5
(Being invoice sent)
10/11/19
571 Cash 1880572.5
411 Customer 1880572.5
(Being cash payment of sales)
 Exercise
On the 20 Dec 2019. Kiliwum enterprise sold goods to Asong amounting to 3800000.
The sales conditions were as follows.
Rebates 6%, cash discount 2%, trade discount 4%, carriage invoice 120000 FRS, VAT
19.25%.
- Prepare an invoice and show the accounting recording considering that the Gross
profit on sales is 10%.

Sales 3800000
Gross profit (10/100*3800000) -380000
Cost of goods sold = Sales – Gross Profit =3420000

Gross Amount 3800000

Rebates (6/100*3800000) -228000
1st Commercial net =3572000
Trade discount (4/100*3572000) -142880
2nd Commercial Net =3429120
Cash discount (2/100*3429120) -68582.4
Financial Net =3360537.6
Carriage invoice +120000
=3480537.6
VAT (19.25/100*3480537.6) +670003.488
Net Payable 4150541.09

Dr Cr 20/12/19 Dr Cr
6031 Stock variation 3420000
311 Stock of goods 3420000
(Being stock of goods out of the warehouse)
20/12/19
411 Customer 4150541.09
701 Sales 3360537.6
707 Accessory income 120000
443 VAT 670003.488
(Being invoice send)
20/12/19
571 cash 4150541.09
411 Customer 4150541.09

2nd Case
When the supplier has no means and contacts the transporter.
Here, the supplier contacts the transporter and pays in cash on behalf of the customer. He or she
records the payment in a/c 613 (transport expenses on behalf of 3rd party) and then transfers the
expenses in A/c 781 to the customer.
Example: On the 15 Nov 2017, Besong enterprise sold goods to Ebai amounting to 4000000.
The sales conditions were as follows.
Trade discount 3%, cash discount 2%, VAT 19.25%, transport paid 143100 VAT inclusive. Do
the accounting recording after you have presented the sales invoice in the books of Besong.
Gross profit on sales 30%.
Gross profit (30/100*4000000) 1200000
Cost of goods sold= 4000000 – 1200000 = 2800000

Gross Amount 4000000

Trade discount (3/100*4000000) -120000
Commercial Net =3880000
Cash discount (2/100*3880000) - 77600
Financial Net =3802400
VAT (19.25/100*3802400) +731962
Amount =4534362
Transport +143100
Net Payable =4677462

Dr Cr 15/11/17 Dr Cr
6031 stock variation 2800000
311 Stock of goods 2800000
(To show exit of goods from warehouse)
15/11/17
613 Transport on behalf of 3rd party 143100
571 Cash 143100
(Being Transport paid on behalf of customer)
15/11/17
411 Customer 4677462
673 Cash discount 77600
701 Sales 3880000
781 Transfer operating expenses 143100
443 VAT 731962
(Being invoice send)
15/11/17
571 Cash 4677462
411 Customer 4677462

Assignment
On the 18th Nov 2018, Sorepco company sold goods to enterprise Takang amounting to 6400000
FRS. The sales conditions were as follows.
Trade discount 4%, cash discount 3%, VAT 19.25%, transport paid 477000 FRS, mark-up rate
25%.
- Present an invoice and do the accounting recording in the book of Sorepco.
Sales 6,400,000
Gross profit (25/100*6,400,000) -1,600,000
Cost of goods sold = Sales – Gross Profit =4,800,000

Gross Amount 6,400,000

Trade discount (4/100*6,400,000) -256,000
1st Commercial net =6,144,000
cash discount (3/100*6,144,000) -184,320
Financial Net =5,959,600
VAT (19.25/100*5,959,600) +1,147,238.4
Amount before transport 7,106,918.4
Carriage paid +477,000
Net Payable 7,583,918.4
In Sorepco books (Seller)
Dr Cr 20/12/19 Dr Cr
6031 Stock variation 4,800,000
311 Stock of goods 4,800,000
(Being stock of goods out of the warehouse)
20/12/19
613 Transport on behalf of third parties 477,000
571 Cash 477,000
(Being transport paid on behalf of third party)
411 Customer 7,583,918.4
673 Cash discount granted 184,320
 701 Sales 6,144,000
707 Accessory income 477,000
443 VAT 1,147,238.4
(Being invoice send)
20/12/19
571 cash 7,583,918.4
411 Customer 7,583,918.4
(Being cash received)

In UNILEVER BOOKS ( CUSTOMER)

Dr Cr 20/12/19 Dr Cr
(Being transport paid on behalf of third party)
411 Customer 7,583,918.4
673 Cash discount granted 184,320
701 Sales 6,144,000
707 Accessory income 477,000
443 VAT 1,147,238.4
(Being invoice send)
20/12/19
401 Supplier 7,583,918.4
571 Cash 7,583,918.4
(Being cash received)