Receipt: Definition, Types, and IRS Rules

What Is a Receipt?

A receipt is a written acknowledgment that something of value has been transferred from one party to another. In addition to the receipts consumers typically receive from vendors and service providers, receipts are also issued in business-to-business dealings as well as stock market transactions.

Key Takeaways

  • Receipts are an official record that represents proof of a financial transaction or purchase.
  • Receipts are issued in business-to-business dealings as well as stock market transactions.
  • Receipts are also necessary for tax purposes as proof of certain expenses.
  • In accounting, receipts can also refer to the total cash inflows over a specific period of time.
  • A typical receipt states the time and value of a transaction, and may also include information on the type of service or product being provided, the method of payment, and any additional taxes or fees.

For example, the holder of a futures contract is generally given a delivery instrument, which acts as a receipt in that it can be exchanged for the underlying asset when the futures contract expires.

How a Receipt Works

Receipts are used to document payments and business transactions. Companies and other entities use receipts to track their cash flows, reimburse eligible payments, or claim certain benefits on their taxes. In some countries, businesses are required to provide a receipt for each transaction.

Each receipt should include the date of the transaction. In most cases, they include other details such as the nature of the transaction, details of the vendor, method of payment, and any additional taxes or costs. In some cases, they may require a signature.

While receipts were once written out by hand, today they are automatically generated at the point-of-sale.

Types of Receipts

In addition to showing ownership, receipts are important for other reasons. For instance, many retailers insist that a customer must show a receipt to exchange or return items while others demand that a receipt—generally issued within a certain timeframe—be produced for product warranty purposes. Receipts can also be important for taxes because the IRS requires documentation of certain expenses. The Internal Revenue Service (IRS) suggests that the following types of receipts if generated, be retained by small businesses:

  • Gross receipts such as cash register tapes, deposit information (cash and credit sales), receipt books, invoices, forms 1099-MISC
  • Receipts from purchases and raw materials (These should show the amount paid and confirm that they were necessary business purchases; documents could include canceled checks or other documents that identify the payee, amount, and proof of payment/electronic fund transfers.)
  • Cash register tape receipts
  • Credit card receipts and statements
  • Invoices
  • Petty cash slips for small cash payments

Origin of Receipts

The practice of retaining receipts for tax purposes is thought to originate from ancient Egypt. Farmers and merchants sought ways to document transactions to avoid tax exploitation. Papyrus was used instead of paper. In more modern times, London banks used the printing presses of the industrial revolution to print receipts with their own brands.

Fast Fact

Thermal printing is the most commonly used form of physical receipt printing because it is low cost and easy to use. Today, however, paper receipts are increasingly giving way to electronic receipts in the form of emails or other digital record.

IRS Requirements for Digital Receipts

Digital receipts are becoming the norm. Since 1997, the IRS has accepted scanned and digital receipts as valid records for tax purposes. Revenue Procedure 97-22 states that digital receipts must be accurate, easily stored, preserved, retrieved, and reproduced. The business owner must be able to supply a copy to the IRS.

Digital records are not subject to wear and tear as are physical receipts, but they can be lost if a hard drive fails. It's thus wise to store them on the cloud or somewhere where they can always be accessed.

Paper receipts can be stored digitally using desktop scanners and mobile phone apps. This type of technology can organize, create expense reports, and integrate data with bookkeeping software.

For tax audit purposes, not all documentation is valid. The IRS accepts various documentation as long as it details the amount, place, date, and type of expense. 

What Are the Types of Receipts?

Common examples of receipts include packing slips, cash register tape, invoices, credit card statements, petty cash slips, and invoices. Although the format for these forms may vary, they all serve the same purpose of documenting the time and value of a business transaction.

Is an Invoice the Same As a Receipt?

An invoice is a request for payment, while a receipt is a document for payment that has already occurred. Businesses frequently use invoices after providing a service to notify the customer of the expected payment.

What Are Gross Receipts?

Gross receipts are the total amount of cash or property that a business receives, without accounting for any other expenses or deductions. Accountants use a company's gross receipts as one factor to calculate the firm's net income and profitability.

What Are Read Receipts?

Read receipts are used in emails to determine if a message has been opened or read by the recipient. They are used in a similar way to mail delivery receipts, as proof that a message has been delivered.

How Long Should You Keep Receipts for Taxes?

For most expenses, you should keep receipts and other records for three years after filing taxes, as this is how long it takes for the period of limitations to run out. However, for some types of expenses—such as unreported income or bad debt deductions—the IRS advises you to keep records for six or even seven years. If you do not file a return or file a fraudulent return, you should keep your records indefinitely.

The Bottom Line

Receipts are one of the basic units of corporate accounting. Businesses use may use receipts as proof of payment, to claim deductions on their taxes, and to document expenditures on their income statements as well as to substantiate the existence of the assets on their balance sheets.

Article Sources
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  1. Internal Revenue Service. "How Long Should I Keep Records?"

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