252435 - Basic Invoicing_Financial and Accounting Principles

Welcome to the

Basic Invoicing and Accounting
Principles

US 252435

Purpose of Module

• The person credited with this Unit Standard will be able to perform routine financial
transactions and calculations and need to apply the processes and procedures
necessary to initiate the recording of disbursements and revenues, and to
understand the financial implications to the organisation of each element in the
transaction.

The qualifying learner is capable of:
• Explaining items of expenditure and revenue.
• Explaining fixed and variable costs.
• Performing invoicing operations and post amounts to the appropriate accounts.
• Reconciling and identifying individual transactions with statements of accounts.
• Identifying and disbursing the items on behalf of the organisation to be recovered in

the invoicing process.

Explain items of expenditure and revenue.

A definition of expenditure is provided in the context of
freight forwarding and customs clearing.

Introduction

In all activities (whether business activities or non-business
activities) and in all organisations (whether business organisations
like a manufacturing entity or trading entity or non-business
organisations like schools, colleges, hospitals, libraries, clubs,
temples, political parties) which require money and other
economic resources, accounting is required to account for these
resources.

In other words, wherever money is involved, accounting is
required to account for it. Accounting is often called the language
of business. The basic function of any language is to serve as a
means of communication. Accounting also serves this function.

Explain items of expenditure and revenue.

A definition of expenditure is provided in the context of
freight forwarding and customs clearing.

Definitions

• Accounting is a profession used to make financial and business
decisions. Billions of dollars exchange hands every day, in millions
of separate business transactions. These are recorded and
reported on using a comprehensive set of guidelines, referred to
as Generally Accepted Accounting Principles (GAAP).

• Accounting: n. The bookkeeping methods involved in making a
financial record of business transactions and in the preparation of
statements concerning the assets, liabilities, and operating results
of a business.

• System: n. A group of interacting, interrelated, or interdependent
elements forming a complex whole.

Disbursements

A Disbursement or item of expenditure is a payment
which is made by a Forwarder, on behalf of their client,
to a third party during the process of moving their cargo.

Explain items of expenditure and revenue.

The differences between expenditure and revenue are
explained as they apply to freight forwarding.

Disbursements / Expenditure

The most common examples of disbursements
would be the following:

• Origin / Destination charges paid to an overseas agent.
• Freight charges paid to a shipping line, airline, groupage operator or

airfreight consolidator.
• Duty and VAT paid to Customs.
• Cargo Dues paid to Transnet National Port Authority.
• Terminal Handling Charge (THC) paid to the Transnet Port Terminals
• Cargo handling charges paid to a container depot.
• Transport charges paid to a road transporter or cartage operator.
• Insurance premiums paid to a broker or insurance company.

Difference between expenditure and
revenue

In the freight forwarding industry it is vital to be able to distinguish
between items of expenditure in terms of the amounts which you
are charged by the service providers and other third parties in the
course of transporting your client’s goods and the money which
the agent earns for the services which they provide for managing
the transport process on behalf of the client.

As disbursements increase so will your main source of revenue,
Agency, if this is based on the total amount of these but this may
also mean that the funding of these disbursements also increases.

Explain items of expenditure and revenue.

The differences between expenditure and revenue are
explained as they apply to freight forwarding.

Verification of costs

• It is therefore critical that, whoever is managing the file, makes
sure that no unexpected costs are incurred and, if there are,
that the reason for this is clearly documented and recorded.

• Hopefully this is not the fault of the agent so they can
legitimately be passed onto the client on the invoice with an
explanation as to the reason for them.

Explain fixed and variable costs.
Fixed costs are defined with examples.

Definition of Fixed costs

• Fixed costs can be defined as those costs which do not change
in line with increases or decreases in production. In other
words, costs which will occur no matter how many units are
being produced and even if no production is taking place these
costs would still have to be paid.

• In the case of the forwarding and clearing industry we would
define production as the number of shipments, or files, which
are handled during the month.

Examples of Fixed costs

• Rent which is being paid for office space in a building.

• Salaries of the employees of the company which do not vary whatever the volume of work
handled. These are normally fixed at the start of the year and remain constant.

• Pension premiums which are outlaid by the company on behalf of its employees and are very
often linked directly, as a percentage, to the amount of their salary.

• In line with this would also be other “salary linked“ costs such as UIF payments

• Leasing charges for the motor vehicles which are being paid for by the company and provided
for its staff.

• Administration costs for work which has to be carried out regardless of the amount of business
being handled. This also applies to contracts for services such as Cleaning which are normally
for period of at least a year or more and normally at an agreed rate for that period.

• Telephone charges which are payable independently of the number of calls made and are based
on the number of lines needed by the user i.e. monthly Rental of a line from Telkom.

• Interest on loans can also be considered as a fixed cost. The amount repaid may vary slightly
with changes in the interest rate but this has nothing to do with production. Whatever the
volume of business being handled the loan still has to be paid off.

Explain fixed and variable costs.
Variable cost is defined with examples.

Examples of Variable costs

• Communication costs e.g. telephone calls and faxes which would increase in direct
proportion to the number of extra files being handled. They would also decrease if
fewer files were being processed.

• Materials and consumables such as printing and stationary. The more files being
handled the more paper that will be used. The same also applies for items such as
electricity where consumption will fluctuate in direct relation to the levels of activity.

• Computer expenses would also fluctuate as you often are paying a fee per entry for
the processing system. The more entries being handled the higher the monthly fees.

• Vehicle costs such as petrol will also change as the volume of work being handled
grows. More petrol for cars would also be needed as more entries being framed
means more documents have to be collected from, and delivered to, both the
customs office and also to your client`s premises.

Examples of Variable costs

• Overtime can also be treated as a variable cost as it is difficult to predict when this
will be incurred as well as what amount will be involved. When preparing a budget
you have a good idea when it may be incurred such as the end of the month or end
of the financial year when files and accounts have to be finalized by a deadline or
just before the Christmas “shut down“ for the holidays so it may be more prudent to
include a figure in the budget for this but with increase to allow for the factors and
peaks described previously.

• Another cost which is difficult to anticipate and quantify in terms and when and for
how much you should budget is an Overdraft facility and the Interest this will incur
when you make use of it. If you are in the fortunate position to be able to use
client’s payments to fund your cash flow then you may not need such a facility at
your bank.

Explain fixed and variable costs.

Three examples are provided where fixed costs could
happen.

Examples of Fixed costs

• The clearest example of where fixed costs could occur is the workplace itself
with the main example being salaries which are usually set at the start of the
year and remain valid for a period of 12 months unless they are re-
negotiated or an interim increase is approved.

• Hand in hand with this goes the pension payment which, in most cases, is
based on a percentage of the salary in line with tax regulations or the agreed
rate of the company’s pension plan so if the salary changes then so will the
amount of the pension payment.

• Rental is the third main item of expenditure incurred in an office

Explain fixed and variable costs.

Examples are provided where variable costs could be
confused as fixed costs.

Examples of Variable costs

• If variable costs are mistakenly identified as fixed costs then they will be
viewed as not being able to be adjusted in the short to medium term and
therefore the options available, in respect of the cost items which could be
used to reduce expenditure, would be will be limited.

• If Telephone Calls (Variable) were confused with Telephone Rentals (Fixed)
not only would the expenditure increase as the budget would include a
higher cost figure as the cost of the calls each month is always much higher
than the amount spent on the annual line rental.

• Other examples where confusion could occur would be wages for part time
or temporary staff (Variable) as opposed to Salaries for full time staff (Fixed)
and sales commission (Variable) which depends on the amount of business
secured and will therefore vary in line with this factor and should not
therefore be confused as a Fixed cost.

Explain fixed and variable costs.

The consequences of a variable cost being confused as a
fixed cost are explained with examples.

Consequences of Variable cost being
confused as fixed cost

• The main purposes of a budget are to set out your expected
income for the forthcoming period, usually 12 months, as well
as your expected costs and then to compare these to see the
overall position for the 12 month period.

• It is therefore very important that you are accurate and realistic
with your figures in terms of the real situation as opposed to
the ideal position so that you can then assess the situation and
decide upon what action is required to deal with any situation
which the budget presents.

Perform invoicing operations and post amounts to the
appropriate accounts.

An invoice is prepared which has items of expenditure and
items revenue for a sea freight shipment for a full container
load and import which has paid customs duty, duty schedule,

and the ocean freight is on a collect basis.

Preparing Invoice with
expenditure/revenue items

• Origin charges
• Origin Tariff Heading
• Documentation i.e. Customs Clearance in country of Origin etc.
• Freight Charges
• Destination Charges like Cargo Dues, Destination THC, Road

Transport, Empty Turn-in, Customs Duty & VAT, Insurance etc.
• Clearing Charges like Framing Fee for Customs Declaration,

Agency Fee, Finance Fee, Customs Examination Fee

Perform invoicing operations and post amounts to the
appropriate accounts.

An invoice is prepared for an air freight export shipment
which has items of expenditure and items of revenue where
the master airway bill is collect, insurance must be invoiced

as well as cartage collection charges.

Preparing Invoice for Airfreight Export
shipment

• AWB Fee
• Cartage – Collection
• Handling Fee
• Airfreight (per kg rate based on chargeable weight of the cargo)
• Fuel/Security surcharge
• Handover Fee
• Split Fees
• Insurance
• Clearing charges

Perform invoicing operations and post amounts to the
appropriate accounts.

The expenditure items must be posted to the appropriate
accounts for both the seafreight and airfreight invoices.

Posting Expenditure items to correct
accounts

• These details would include not only the name and address of
the client but also items such as the vessel name and voyage
or flight number as well as the weight, volume and numbers of
packages. Client references, account numbers and document
numbers could also be transferred in the same way.

• A second and equally important feature of an automated
system is the ability to link common items from different
invoices onto the company’s financial records or ledgers.

Main Ledger Allocation

• Within the main ledger, it will be allocated to a sub-ledger e.g.
Customs Duty, Customs VAT and the main freight charge paid
to the carrier, whether this is an airline of a shipping line, so as
to reflect the total of all amounts recorded against this code.

• An added advantage is that it enables an agent to identify, if
the program permits, how much money is due to specific
parties e.g. SARS, during a specific period of time.

Perform invoicing operations and post amounts to the
appropriate accounts.

A record is made up of the over-recoveries of the items of
expenditure which must later be taken to profit.

Records

• Although an agent`s main sources of revenue are the Agency,
Documentation and Finance (Interest) fees these are not the
only contributors to the overall profit on a file.

• As with any other business there is a difference between the
costs paid, in the forwarder’s case for a service provided by a
third party, and the price which is invoiced out for this to the
client.

Reconcile and identify individual transactions with
statements of accounts.

Ocean freight or air freight is identified as items of the
organisations invoices.

Seafreight or Airfreight Identified

• It is also important that you are able to distinguish between
items which are exclusively for airfreight expenditure as
opposed to those which are unique to ocean freight
shipments.

• The main carriage of freight will be either the basic ocean
freight charge, levied per container or per freight ton, or the
basic airfreight charge levied on a per Kg basis.

Reconcile and identify individual transactions with
statements of accounts.

Cartage is identified as an item of the company's invoices
and statements from the transporter taking into account all

over-and-under recoveries.

Cartage is Identified

• There are very few consignments which are handled which do not,
at some stage, involve the services of a haulier or Cartage operator.

• The can be part of the Origin charges which would include either
the positioning of an empty container at the Exporter’s premises for
loading and returning to the Port Terminal to the collection of the
actual goods at the exporter’s premises for delivery to the container
depot for loading with other cargo into a groupage container.

• Alternatively, it could involve operations in the Destination country
i.e. delivery of the container to the Consignee and turn in of the
empty at the nominated container depot or collection of the goods
from the depot after the unpacking of the groupage container and
then delivery to the nominated address.

Cartage as source for additional Revenue

• Cartage is always a potential source of additional revenue to
the agent so this should be kept in mind when ageing rates
with your client.

• In most cases, you should have an agreed tariff from your
cartage operator which can be used as a base for calculating
the over and under recovery. These rates should be fixed for
as long a period as possible although with the constant
monthly change in the price of diesel adjustments may be
controlled by a percentage factor altered at the start of each
month in line with the movement in the diesel price.

Reconcile and identify individual transactions with
statements of accounts.

All landside and surface charges are identified including port
authority charges, airline charges, depot charges and
carrier's handling.

Landside and Surface charges identified

v The most common of the third-party charges is the Terminal Handling
Charge (THC) which is set by the Transnet Port Terminals and which covers
the cost of handling and stacking the containers in the terminal area prior
to the sailing, or after the arrival, of the vessel.

v This is charged out on a “Per Container” basis with a higher rate for a 12m
than for a 6m although the rate applied for each size will be the same
whether the container is coming into, or going out of, the country.

v Other factors which may affect the rate will be the type of cargo i.e.
whether the cargo being moved is Hazardous or Perishable and the weight
of the cargo i.e. whether the load is deemed to be abnormal and the cargo
specifications exceed the specified standard limits and is therefore
considered “Out of Gauge”.

Reconcile and identify individual transactions with
statements of accounts.

All customs and charges are identified and reconciled with
bills of entries, statements and deferment accounts.

Customs Charges are Identified

• One of the key aspects when preparing an estimate is the
calculation of the Customs Duty where applicable as well as
VAT.

• These will be payable on the items which are being imported.
• Have all basic information to hand to calculate these 2

amounts.

Customs & VAT Example

To calculate the value for duty purposes you must take the F.O.B. value and convert it
into Rand using the rate of exchange provided. Having converted the foreign value into
Rand you must then multiply that amount by the rate of Customs Duty indicated by the
tariff heading for the product. This will give you a figure for the Duty payable.

For example :

• Foreign Value : GBP 10,000

• Customs Rate of Exchange : ZAR 1.00 = GBP 0.8333

• Rate of Customs Duty = 10%

• Customs Value (GBP 10,000 / 0.8333) ZAR 120,000.48

• Customs Value (Rounded Down) ZAR 120,000.00

• Duty Payable (ZAR 120,000.00 x 10%) ZAR 12,000.00

Having calculated this you must then work out the value for VAT purposes.

Reconcile and identify individual transactions with
statements of accounts.

Other disbursements charges are identified and reconciled
with invoices from those parties taking into account all over-

and-under recoveries.

Other Disbursements

• There are a number of extra, or other charges, which may be
incurred but not as a result of breaches of the terms and
conditions of the parties involved i.e. penalty and storage
charges.

• The most likely of these is going to be your overseas agent’s
charges or fees which will be dictated by the Incoterms®
2010 Rules involved in the agreement between the Seller
and the Buyer.

Other Disbursements

• The most important point is that the agent must check the commercial
invoice for the Incoterms® 2010 Rules to establish whether any charges are
to be expected and then to make sure that an invoice exists for these
which will form the basis for charging these out to your client. As before
these are disbursements outlaid by the agent and therefore the latter is
entitled to charge out agency on the amounts involved.

• The agent is more frequently involved these days in arranging Insurance on
behalf of the client. This involves the quoting of a Premium by the agent
which has been provided by the insurer with whom cover has been placed
by the agent on behalf of the client.

Reconcile and identify individual transactions with
statements of accounts.

Supplementary charges from outside parties are identified
and reconciled to the organisations invoice taking into
account all over-and-under recoveries.

Supplementary Charges

• There is a difference between standard charges which are incurred
in the process of the normal movement of the cargo and
supplementary charges which could be incurred as a result of not
adhering to the terms and conditions of the various service
providers and operators involved in the handling and transport of
the cargo.

• When preparing an estimate for your client you will include all of
the expected charges which will be incurred during the movement
of the cargo rather than optional ones or ones which depend upon
certain situations occurring. It is important that the clients are
aware that additional or supplementary charges may be raised if
they do not comply with these terms and conditions.

Supplementary Charges examples

• The most frequent type of additional charge will be storage
which could be charged when cargo is not collected within a
specified period of time. For FCLs this means the removal of
the container within 3 days of the completion of the working
of the vessel and, if this is not done, then the container goes
onto Overstay.

• Another good example of supplementary charges is Trailer
Detention a specific amount of time is allowed for the loading
or off-loading process (3 hrs per 6m, 4 hrs per 12m) and where
Penalty charges could be incurred if these periods are
exceeded.

Reconcile and identify individual transactions with
statements of accounts.

Supplementary invoices are disbursed by the organisation
and account for all disbursement items which have been

invoiced.