A pile of invoices and receipts becomes easier to organise when you ask what each document proves. Was stock bought on credit, was money received, or was an earlier charge reduced? The name of the document helps, but the transaction and the business’s point of view decide where the first entry belongs.
This lesson keeps the books of Amberleaf Stationery, a fictional trader that buys notebooks and folders for resale. All names, document numbers and KSh amounts are invented. Ignore taxes, discounts and delivery charges. We choose source documents and books of original entry, with one short journal extract; full ledger posting and cash-book balancing are separate tasks.
Separate evidence from the recording book
A source document is evidence of a transaction, such as an invoice, receipt or credit note. A book of original entry is the record into which transaction details are first organised. One is the supporting evidence; the other is a structured accounting record. Keeping the document reference beside the entry lets someone check the amount, date and other party later.
For this exercise, “goods” means items bought for resale in Amberleaf’s ordinary trade. Office furniture used by Amberleaf is an asset, even though it was purchased from another business. “Credit” means payment is due later. A purchase is not a credit purchase merely because an invoice exists; read the payment information.
We use separate sales, purchases, sales-returns and purchases-returns journals, a cash book for cash and bank movements, and a general journal for items outside those special journals. These are the special-book conventions discussed in NCERT’s Recording of Transactions-II. Terminology and book divisions can vary; the conventions stated here control the answers.
Five original document cards
Each row below is a simplified document extract, not a reproduction of a real invoice. “Issued” and “received” are always from Amberleaf’s perspective. A quantity multiplied by a unit price gives the stated document amount; no hidden charges are added.
| Reference and date | Issuer → recipient | Document details | Amount, KSh |
|---|---|---|---|
| AL-S014, 3 June | Amberleaf → Cedar Path Supplies | Credit invoice: 18 notebook packs at 240 each; payment due later | 4,320 |
| RB-P208, 4 June | Riverbend Paper → Amberleaf | Credit invoice: 25 folder packs at 160 each; payment due later | 4,000 |
| AL-R032, 5 June | Amberleaf → Willow Desk Goods | Receipt: immediate cash sale of 9 notebook packs at 250 each | 2,250 |
| AL-C003, 6 June | Amberleaf → Cedar Path Supplies | Credit note: 3 packs returned from AL-S014 at the original 240 each | 720 |
| SF-091, 7 June | Stoneframe Fixtures → Amberleaf | Credit invoice: one display shelf for shop use; payment due later | 8,400 |
The cards deliberately include two received invoices with different treatments. RB-P208 is for stock; SF-091 is for a display shelf. They also include both a sale on credit and a cash sale. Matching only the words “invoice” or “sale” would hide those distinctions.
Worked case 1: a credit sale followed by a return
AL-S014 is a credit sale of resale goods. Amberleaf issued the invoice, so its retained copy supports an entry in the sales journal for KSh4,320. The calculation is 18 × 240 = 4,320. No money is received at this point, so this is not a cash-book receipt.
On 6 June, Amberleaf accepts three returned packs and issues AL-C003. The allowance is 3 × 240 = KSh720. It belongs in the sales returns journal, also called returns inwards. The direction is inward because goods come back from Amberleaf’s customer.
The unpaid amount associated with these two documents becomes 4,320 − 720 = KSh3,600, assuming no other event. That check connects the credit note to its original invoice. It does not turn the credit note into a cash refund: the example says the debt is reduced, not that cash changes hands.
Worked case 2: distinguish a stock purchase from an asset
RB-P208 supports a purchases journal entry of KSh4,000: 25 × 160 = 4,000. Amberleaf received the invoice, payment is deferred and the folders are resale stock. All three facts matter.
SF-091 also arrived from a supplier on credit, but the shelf is for use in the shop. Record it in the general journal under the system used here. Calling every acquired item “purchases” would put the shelf in the trading-goods record and lose the difference between stock and shop equipment.
| Particulars | Debit | Credit |
|---|---|---|
| Shop fixtures | 8,400 | — |
| Stoneframe Fixtures, supplier | — | 8,400 |
| Narration: display shelf bought on credit, invoice SF-091 | — | — |
The two amounts are equal, and the supplier’s name identifies whom Amberleaf owes. This extract is included only to show what “general journal” means for the unusual transaction. It does not require building or balancing either ledger account.
Worked case 3: an immediate cash sale
AL-R032 records 9 × 250 = KSh2,250 received immediately. Its place is the cash book’s receipts side. It is not entered again in the sales journal, which is reserved here for credit sales of goods. The retained receipt copy supports the cash-book entry.
If Willow later asks for a copy of that receipt, issuing a duplicate document is not a second sale. The original reference and the description of the event prevent double counting. Likewise, an invoice attached to an already-paid cash sale would not create another credit transaction.
Worked case 4: a return to a supplier
In a separate original event, Amberleaf returns four folder packs from RB-P208. It sends debit note AL-D002 requesting an allowance of 4 × 160 = KSh640. Riverbend accepts the return and sends credit note RB-C017 for that amount.
Under this exercise’s confirmation convention, Riverbend’s credit note supports Amberleaf’s purchases returns journal entry, also called returns outwards. Amberleaf’s outstanding amount from the folder invoice is now 4,000 − 640 = KSh3,360. The debit note is the buyer’s request; the received credit note is the supplier’s confirmation. Do not describe Amberleaf as issuing this supplier credit note.
Some textbooks use the buyer’s debit note as the source for the purchases returns journal. Here both notes are linked to the same return, and the stated exercise waits for the supplier’s acceptance. Do not record the return twice.
A transaction-to-book decision table
| Transaction | Typical supporting evidence in this exercise | First book |
|---|---|---|
| Credit sale of resale goods | Issued invoice copy | Sales journal |
| Credit purchase of resale goods | Received supplier invoice | Purchases journal |
| Customer’s accepted credit-sale return | Issued credit note copy | Sales returns journal |
| Accepted return to credit supplier | Received supplier credit note | Purchases returns journal |
| Money received or paid now | Receipt or payment evidence | Cash book |
| Asset bought on credit for business use | Received asset invoice | General journal |
Read the whole event before using the table. A return with an immediate cash refund includes a cash movement and needs the stated system’s cash-book treatment. It is not identical to the debt-reduction cases above. When the question leaves payment or acceptance unclear, state the missing fact instead of silently inventing it.
Three solved practice tasks
Task 1: classify three new documents
Question: Amberleaf receives 14 resale sketch-pad packs on credit at KSh190 each; pays KSh960 cash for cleaning materials used in its own shop; and sells a used shop cabinet on credit for KSh5,700. Choose the first books.
Solution: Sketch pads: 14 × 190 = KSh2,660, purchases journal, supported by the supplier invoice. Cleaning materials: KSh960, cash book payments, supported by payment evidence. Used cabinet: KSh5,700, general journal, supported by the asset-sale invoice. The cabinet is not ordinary resale stock. Any gain or loss calculation would require additional information and is outside this task.
Task 2: follow the return’s direction
Question: A customer returns two credit-sale packs originally invoiced at KSh315 each. Amberleaf accepts them and reduces the customer’s debt. Which document does Amberleaf issue, and where does it enter the amount?
Solution: Issue a credit note for 2 × 315 = KSh630; enter it in the sales returns journal. “Credit note” does not mean the purchases journal. The seller/customer relationship and inward movement identify this case.
Task 3: separate purchase from settlement
Question: Goods costing KSh6,200 were correctly recorded on credit last week. Today Amberleaf pays the supplier KSh2,400 through bank. Should it enter KSh2,400 as fresh purchases?
Solution: No. Record the KSh2,400 bank payment in the cash book, supported by payment evidence and the supplier reference. It settles part of the existing debt. Assuming no returns or other payments, KSh6,200 − KSh2,400 = KSh3,800 remains unpaid.
A short checking routine
For each answer, name the business, state cash or credit, identify whether goods are for resale, and give both document and book. Recalculate quantity times price and link returns to the correct invoice. Never force an uncertain event into a book simply because its heading resembles a familiar question.
Frequently asked questions
- Does every invoice belong in the purchases journal?
- No. Check whether it was received or issued, whether payment is immediate, and whether the items are resale goods or assets used by the business.
- What is the difference between an invoice and a receipt?
- An invoice states the amount charged for a transaction. A receipt acknowledges payment. An invoice alone does not prove that the amount has been paid.
- Who issues a credit note for a customer return?
- The seller issues it to the customer to confirm an agreed reduction of the customer’s account. The seller records a sales return under this lesson’s convention.
- Is a debit note the same as a credit note?
- No. A buyer may send a debit note requesting a reduction for returned goods. Here the return is recorded after the supplier confirms the allowance with a credit note.
- Why is a shelf not a purchase of goods?
- For this fictional stationery trader, the shelf is used to display stock and is not bought for resale. A shelf dealer buying shelves for resale would classify them differently.
- Do I record the later payment as another purchase?
- No. The later cash-book payment settles an existing supplier debt. It is a separate event from buying the goods and must not duplicate the purchase.
- Are these rules a tax or legal compliance guide?
- No. They are a stated classroom bookkeeping system with fictional data, no taxes and no legal advice. Real systems may divide their journals differently.
Explore the Business Studies topical revision collection. Its public navigation is available; resource contents require login. These original classroom cases are not official marking schemes or jurisdiction-specific accounting advice.
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