Name it

The same idea works for a price cut. After 20% off, the new price is 80% of the original.

• Step 1: take the percentage cut away from 100, then divide by 100. A 20% cut gives 0.8
• Step 2: divide the new amount by that figure

Worked example: a sale price is £40 after 20% off. 40 ÷ 0.8 = £50.

The same change can also be given as a percentage of the old rate. The method is the one for any percentage change.

• Step 1: find the change in percentage points
• Step 2: divide the change by the old rate
• Step 3: multiply by 100

Worked example: a rate goes from 4% to 6%. The change is 2. 2 ÷ 4 × 100 = 50%. So a rise of 2 percentage points is here a rise of 50%.

The two answers are very different, so always say which one you mean.

A credit note reduces what a customer owes. It is the opposite of an invoice.

• Goods were returned
• Goods arrived damaged or misprinted
• The invoice charged too much

An invoice is never rubbed out or changed. It is corrected with a credit note.

Marlow Cycles buys an air compressor from Tooling Direct on credit. The net price is £800 and VAT is 20%. The business can claim the VAT back.

The asset is debited with the net price. The VAT is debited to the VAT account. The supplier is credited with the gross amount, because that is what must be paid.

Both are regular payments out of a bank account. The difference is who sets them up and who decides the amount.

Standing order

the payer tells its own bank to pay a fixed amount on fixed dates. Only the payer can change it

Direct debit

the payer signs an instruction that lets the payee collect money. The payee decides the amount and the date, and both can change

So a standing order suits an amount that stays the same. A direct debit suits a bill that changes.

A standing order never changes by itself. If the amount goes up, the payer must tell its bank.

With a direct debit, the payee must tell the payer in advance before it changes the amount or the date.

If a direct debit is taken by mistake, the payer's own bank refunds it at once. This promise is called the Direct Debit Guarantee.

A liability is money the business owes to someone else, such as a bank loan or an unpaid supplier bill.

Capital is what the business owes its owner: the money the owner put in, plus any profit left in the business.

Both answer the same question: where did the money come from?

Once a payment is matched, the invoices it covers are no longer outstanding.

A receipt is the seller's proof that money was received. It is most common for cash and card sales.