Financial Accounting · Sales and purchases

Sales and Purchases Documentation Flow in ACCA Financial Accounting

Updated 11 October 2026 · Fact-checked

The sales and purchases cycle runs from order to delivery note, invoice, credit note if goods are returned or the price is cut, statement, and finally payment with a remittance advice. Only some documents trigger ledger entries: invoices and credit notes do. Orders and delivery notes do not.

Understand Sales and Purchases Documentation Flow

Every credit sale or purchase leaves a paper (or electronic) trail. Each document has a job. Some are requests, some are proof, and some are the source for an accounting entry. In the exam you must know which is which.

In the sales cycle, the customer sends a purchase order to you. You send the goods with a delivery note (also called a despatch note), and the customer signs it as proof of receipt. You then issue a sales invoice showing quantities, prices, sales tax and payment terms. If goods are returned, damaged or overcharged, you issue a credit note to reduce the amount owed. At month end you send a statement listing the invoices, credit notes and payments on the account. When the customer pays, they send a remittance advice saying which invoices the payment covers.

The purchases cycle is the same trail seen from the buyer's side. You raise a purchase requisition internally, then a purchase order to the supplier. When the goods arrive, you check them and record a goods received note (GRN). You match the supplier's invoice to the order and the GRN before approving payment. Credit notes received reduce what you owe. You compare the supplier's statement with your payables ledger, then send a remittance advice with payment.

A debit note is a document sent by a buyer to a supplier to request a credit note, or to show goods returned and the amount the buyer wants deducted. It is a request, not the supplier's own record of the reduction. The supplier's credit note is the document that confirms it. Do not confuse the accounting terms "debit" and "credit" with these documents. The credit note reduces the customer's receivable, yet it is called a credit note because it credits the customer's account in the seller's ledger.

The key link to the books: invoices and credit notes are the source documents for the sales day book, purchases day book and returns day books. Orders, delivery notes and GRNs support the transaction but are not themselves entered in the ledgers. Statements and remittance advices help you check and reconcile balances.

Key formulas to remember

Sales invoice entry: Dr Receivables (gross) ; Cr Sales (net) ; Cr Sales tax payable; Posted from the sales day book. Gross = net + sales tax.
Purchase invoice entry: Dr Purchases (net) ; Dr Sales tax recoverable ; Cr Payables (gross); Posted from the purchases day book. Assumes the tax is recoverable.
Credit note issued (sales return): Dr Sales returns (net) ; Dr Sales tax ; Cr Receivables (gross); Posted from the sales returns day book. It reduces the customer's balance.
Credit note received (purchase return): Dr Payables (gross) ; Cr Purchase returns (net) ; Cr Sales tax recoverable; Posted from the purchases returns day book.
Statement balance: Closing balance = opening balance + invoices − credit notes − payments; Use to reconcile a supplier statement to your payables ledger.
Documents that create entries: Invoice and credit note = entry ; order, delivery note, GRN = no entry; Orders and delivery notes are not recorded in the ledgers.

How to solve Sales and Purchases Documentation Flow questions

Use this method for any question asking which document is used, what it triggers, or how to record it.

1Identify whose books you are in: the seller (sales cycle) or the buyer (purchases cycle).
2Place the document in the sequence: order, delivery or GRN, invoice, credit note, statement, payment and remittance advice.
3Decide the document's purpose: request, proof of delivery, demand for payment, correction, summary or payment notice.
4Ask whether it changes the amount owed. If yes (invoice or credit note), it triggers an accounting entry. If no, it does not.
5If an entry is needed, name the day book it goes in, then write the double entry.
6Split gross, net and sales tax carefully and check the debits equal the credits.
7For statement questions, compare the statement with the ledger and look for timing differences or unrecorded credit notes.

Quickest way: Does it change the amount owed?

When to use it: Use for multiple choice questions asking which document is correct or which is recorded in the books.

Read the question and find the document or event described.
Ask: does it change the amount owed? Invoice raises it, credit note lowers it, payment lowers it.
If it only requests, proves delivery or summarises, there is no ledger entry.
Match to the options and cross out any that treat orders or delivery notes as accounting entries.
For number entry, compute gross = net × (1 + tax rate) and enter the figure asked for.

Common mistakes in Sales and Purchases Documentation Flow

Recording a purchase order or delivery note in the ledgers.
Students think any transaction document creates an entry.
Fix: Remember only invoices and credit notes change the amount owed. Orders and delivery notes are not recorded.
Confusing a debit note with a credit note.
The names are similar and both relate to returns.
Fix: A debit note is the buyer's request to cancel or reduce an invoice. A credit note is the seller's confirmation that reduces the receivable.
Treating a statement as a source document for the ledger.
A statement lists balances, so it looks like a record.
Fix: A statement is a summary used to check balances. Reconcile against it. Do not post from it.
Posting the gross invoice amount to sales.
Students forget sales tax is owed to the tax authority.
Fix: Credit sales with the net amount and credit sales tax payable separately. Receivables take the gross.
Mixing up a remittance advice with a receipt or invoice.
All three mention an amount of money.
Fix: A remittance advice comes from the payer with the payment. It tells the supplier which invoices are being paid.
Reversing the direction of a credit note entry.
The word credit suggests crediting sales.
Fix: A credit note issued debits sales returns and credits receivables. Check which ledger account is being reduced.

Worked examples

Example 1

Your business sells goods on credit to a customer for $4,000 net plus sales tax at 20%. The customer later returns goods with a net value of $500. Show the entries for the invoice and the credit note, and the customer's balance.

Show the solution

Invoice: sales tax = $4,000 × 20% = $800. Gross = $4,800.
Dr Receivables $4,800 ; Cr Sales $4,000 ; Cr Sales tax payable $800.
Credit note: sales tax = $500 × 20% = $100. Gross = $600.
Dr Sales returns $500 ; Dr Sales tax payable $100 ; Cr Receivables $600.
Customer's balance = $4,800 − $600 = $4,200.

Answer: The customer owes $4,200 after the credit note.

Example 2

A supplier's statement shows a closing balance of $7,350. It shows opening balance $2,000, invoices $8,000 and payments $2,650. Your payables ledger shows $5,350 owed. The supplier has not yet recorded a credit note of $2,000 that you have received and entered. Is the difference explained by the credit note? Explain.

Show the solution

Check the statement arithmetic: $2,000 + $8,000 − $2,650 = $7,350, which agrees with the closing balance.
Difference between statement and ledger = $7,350 − $5,350 = $2,000.
Credit note not on the statement = $2,000. This explains the full difference.
Adjusted statement balance = $7,350 − $2,000 = $5,350, which matches the ledger.

Answer: Yes. The $2,000 credit note is missing from the statement, so the ledger balance of $5,350 is correct.

Exam tips

Learn the document order for both cycles. Many questions ask what comes next or which document is missing.
Expect multiple choice that asks which document does not lead to an entry. The answer is usually an order or delivery note.
For multiple response questions, read how many options you must select and tick exactly that number.
In number entry questions, check whether the figure asked for is net, tax or gross before you calculate.
In statement questions, look for credit notes or payments in transit as the usual reconciling items.

Practice questions from Sales and purchases

Sales and Purchases Documentation Flow: frequently asked questions

What is the difference between a credit note and a debit note?

A credit note is issued by the seller to reduce the amount a customer owes, for example after returns. A debit note is raised by the buyer to ask the supplier for a reduction, and the supplier confirms it with a credit note.

Which documents are recorded in the accounting records?

Invoices and credit notes are recorded through the day books and then the ledgers. Orders, delivery notes and goods received notes support the transaction but create no entry.

What is a remittance advice?

It is a document sent by the payer with a payment. It lists the invoices and credit notes being settled so the supplier can update the receivables ledger.

What is the purpose of a supplier statement?

It summarises what the supplier believes you owe. You compare it with your payables ledger to find errors, missing credit notes and timing differences.