Finance and Bookkeeping - Session 02

Invoices Bills and Payments

Record the difference between an invoice, a bill, and a payment. Check an imported bank transaction without counting the same revenue or expense twice.

The MSP finance task

A client payment appears in the bank feed after its invoice was recorded. A supplier payment appears after its bill was entered. Matching these payments to the original records keeps the books from counting the same activity twice.

Invoices, bills, and payments

An invoice charges a client. A bill records a supplier obligation. A payment settles an amount owed. Find the original record before processing the payment.

The chart of accounts

Accounts classify transactions. Client and supplier names identify counterparties. The item purchased and its purpose determine the appropriate cost account under company policy.

The five account types

Assets are resources. Liabilities are obligations. Equity is assets minus liabilities. Revenue records earnings. Expenses record period costs.

Debits and credits

Ordinary assets and expenses increase with debits. Ordinary liabilities, equity, and revenue increase with credits. Total debits equal total credits.

The payment entry

A client collection increases cash and reduces receivables. A supplier payment reduces payables and cash. The original revenue and expense remain recorded once.

Bank feed review

Check existing records before accepting a match or creating an entry. Verify amount, date, account, client or supplier, and supporting document.

The partial payment

Practice invoice: $1,200. Collection: $800. Receivable remaining: $400. Supplier payment: $250. Net cash increase: $550.

The entry review

Connect each document to its accounts and payment. Record exceptions. Agree approval responsibilities for credits, refunds, and payment-detail changes.

A $700 client invoice already exists. Its payment appears in the bank feed. Which treatment preserves the original revenue?

  1. Record another $700 of service revenue
  2. Connect the payment to the existing invoice
  3. Reduce the next month's service charge
  4. Create a supplier credit for $700

A supplier bill for $250 was entered correctly and is now paid. Which account pair describes the payment?

  1. Expense increases; revenue increases
  2. Receivables decrease; cash increases
  3. Payables increase; expense increases
  4. Payables decrease; cash decreases

An MSP moves $3,000 from one company bank account to another. What should the accounting records show?

  1. A cash transfer between the two accounts
  2. Service revenue in the receiving account
  3. A supplier expense in the sending account
  4. A client receivable for the transfer amount

Key terms

Chart of accounts
The list of categories used to record financial transactions.
Asset
A resource the business owns or controls, such as cash or an amount due from a client.
Liability
An amount or obligation the business owes.
Equity
The owners' residual interest after liabilities are subtracted from assets.

Three points to remember

  1. Payments settle recorded balances without repeating revenue or expense.
  2. A balanced entry still needs evidence and the right classification.
  3. Matching requires checking the original record and remaining balance.