One order, quotation to credit note: a Dubai example

The example order

For this example, a customer asks for 100 units of Item A at AED 12.00 and 20 units of Item B at AED 40.00. These are made-up products and prices, used only to show the flow. The quotation lists both lines and adds 5% VAT, so the customer sees the full amount before agreeing.

• Item A: 100 x AED 12.00 = AED 1,200.00
• Item B: 20 x AED 40.00 = AED 800.00
• Subtotal before VAT: AED 2,000.00
• VAT at 5%: AED 100.00
• Quotation total: AED 2,100.00

From quotation to sales order

The customer agrees, and the quotation is confirmed as a sales order. Nothing is typed again: the lines, prices and customer details carry across. The sales order now stands as the agreed record of what was promised, so if the customer later questions a quantity, you compare the invoice with this order and not with anyone's memory.

The sales order is also what you check before delivery: the right customer, the right lines, the right prices. Catching a mistake here costs a minute. Catching it after the invoice has been sent means a credit note and an awkward conversation with the customer, so a quick look at the order before the goods leave is time well spent.

The purchase order to the supplier

To fill the order you buy the goods from a supplier. In this example the purchase order is for 100 units of Item A at AED 9.00, which is AED 900.00, and 20 units of Item B at AED 30.00, which is AED 600.00. That makes AED 1,500.00 before VAT.

If the supplier charges 5% VAT, that adds AED 75.00, so the supplier's invoice should total AED 1,575.00. Compare it with the purchase order before you pay, and query any difference with the supplier. Your selling price before VAT is AED 2,000.00 and your buying cost is AED 1,500.00, which leaves AED 500.00.

The invoice with 5% VAT

Once the goods are delivered, you raise the invoice from the sales order: AED 2,000.00 plus AED 100.00 VAT, a total of AED 2,100.00. It shows your TRN, the customer's details, the lines carried over from the order, a number from the invoice sequence and a due date. For exactly what an invoice must contain, check with the Federal Tax Authority (FTA) or your accountant, because this example is only an illustration.

Tracking the payment

The customer pays AED 1,000.00 by the due date. The invoice now shows as partly paid, with AED 1,100.00 still open. Because each payment is recorded against its invoice, you see that balance at once, without searching through emails, and you know whom to call before the month ends. Partly paid is a status of its own, so nothing looks settled before it really is.

A returned item and the credit note

Later the customer returns 5 units of Item B because they were the wrong model. You do not edit the invoice that was issued. You raise a credit note linked to it: 5 units at AED 40.00 is AED 200.00, plus AED 10.00 VAT, so the credit note is AED 210.00.

The open balance becomes AED 1,100.00 minus AED 210.00, which is AED 890.00. When the customer pays that amount the invoice is settled. In total they have paid AED 1,890.00, which is the original AED 2,100.00 less the AED 210.00 credit note. Your accountant can confirm how returns should be treated in your own VAT records.