Marina's Post Tray: Which Documents Enter the Books of Prime Entry
Marina is purchase ledger clerk at a garden supplies wholesaler. On 30 June her post tray holds: invoice GS-4471 for £1,180 for compost, with terms of 2% discount if paid within 14 days; credit note GSC-112 for £236 for a short delivery on GS-4471; a second copy of invoice GS-4468 for £472, which was already entered on 24 June; and a pro-forma invoice for £900 from a new supplier who insists on payment before dispatch. Marina's supervisor wants the June purchase day book total to look as high as possible for the bank's quarterly review, and suggests holding the credit note back until July "because it's only a timing difference".
1. State which documents are entered in the purchase day book and purchase returns day book for June, and which are not. Give a reason for each decision.
Read the worked answer
| Document | Treatment | Reason |
|---|---|---|
| GS-4471 £1,180 | Purchase day book, £1,180 | A valid supplier invoice for goods received; entered gross, ignoring the settlement discount, because the discount is only earned when payment is made. |
| GSC-112 £236 | Purchase returns day book, £236 | It is a separate document reducing the amount owed for returned/short goods. It is not netted against the invoice in the purchase day book - each book of prime entry records its own documents. |
| GS-4468 duplicate £472 | No entry | Already recorded on 24 June. Entering it again would double-count the liability. File the copy with the original and check the payment run for duplicate payment. |
| Pro-forma £900 | No entry in any day book | A pro-forma is a request for payment, not a demand for payment for goods supplied and invoiced. It is not a purchase invoice, so there is nothing to credit to payables yet. The payment itself is recorded in the cash book; when the real invoice arrives, the purchase day book records it. |
2. Calculate the amount Marina should pay to settle GS-4471 inside the discount period, and explain where the discount is recorded.
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Step 1 - net the credit note off the invoice: £1,180 − £236 = £944 outstanding. Step 2 - discount: 2% × £944 = £18.88 (discount is calculated on the amount actually owed after the return, not on the original invoice). Step 3 - cash to pay: £944.00 − £18.88 = £925.12.
Recording the discount It does not go in the purchase day book. Books of prime entry capture the original document; the discount arises only at the moment of payment and is recorded in the cash book and the discount received account:
Dr Payables £944.00 Cr Bank £925.12 Cr Discount received £18.88
The £18.88 is other income, not a reduction of the purchase cost - so it is not netted off purchases.
3. How should Marina respond to her supervisor's suggestion about the credit note, and why does the reason given not justify it?
Read the worked answer
The credit note relates to goods returned in June; the return has already happened and the supplier has accepted it. June is therefore the correct period, and holding it back would overstate both the purchase day book total and trade payables at 30 June.
A timing difference is only legitimate when the event falls in the later period. Here the event is in June, so this is not a timing difference - it is a deliberate misstatement made to influence a lender's review of the accounts.
Marina should:
- Enter the credit note in June, as the records require.
- Explain to the supervisor that the information will be used by the bank and must be materially accurate.
- Escalate the matter if the instruction is repeated.
The AAT Code of Professional Ethics requires integrity and objectivity; pressure to make the figures "look better" for a third party is never a reason to alter the timing of a record. Marina's own position is protected by raising it in writing.