What is an 'Invoice'
An invoice is a commercial document that itemizes a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal, and provide information on the available methods of payment. An invoice is also known as a bill or sales invoice.
BREAKING DOWN 'Invoice'Companies may opt to simply send a month-end statement as the invoice for all outstanding transactions. If this is the case, the statement must indicate that no subsequent invoices will be sent.
An invoice must state it is an invoice on the face of the bill. It typically has a unique identifier called the invoice number that is useful for internal and external reference. An invoice typically contains contact information for the seller or service provider in case there is an error relating to the billing. Payment terms may be outlined on the invoice, as well as the information relating to any discounts, early payment details or finance charges assessed for late payments. It also presents the unit cost of an item, total units purchased, freight, handling, shipping and associated tax charges, and it outlines the total amount owed.
Importance of Invoice Date
The invoice date represents the official date in which the goods have been billed. Therefore, the invoice date has essential information regarding payment, as it dictates the credit duration and due date of the bill. This is especially crucial for entities offering credit, such as net 30. The actual due date of the invoice is usually 30 days after the invoice date.
Invoices and Accounts Payables
Invoices track the sale of a product for inventory control, accounting and tax purposes. Many companies ship the product and expect payment on a later date, so the total amount due becomes an account payable for the buyer and an account receivable for the seller. Modern-day invoices are transmitted electronically, rather than being paper-based. If an invoice is lost, the buyer may request a copy from the seller. The use of an invoice represents the presence of credit, as the seller has sent a product or provided a service without receiving cash up front.
Invoices and Internal Controls
Invoices are a critical element of accounting internal controls. Charges on an invoice must be approved by the responsible management personal. Alternatively, an invoice is matched to a purchase order and upon reconciling the information, payment is made for approved transactions. An auditing firm ensures invoices are entered into the appropriate accounting period when testing for expense cutoff.