When a business sells goods on credit, it will issue a document to the buyer giving details of the goods and the prices. The document issued is called an invoice.
The business selling the goods will call it a sales invoice, and the buyer will call it a purchases invoice. Invoices are legal documents which can be used as evidence that the buyer owes money to the seller, and if incorrect, should be corrected with a credit note and not simply deleted.
Invoices come in may different shapes and sizes but the example below shows a typical format and sets out a list of the information normally included.
Information to be Included on the Document
- The word invoice.
- A unique reference number
- The date of the document.
- Name and contact details of the seller
- Tax or company registration details of seller
- Name and contact details of the buyer
- Date that the product was sent or delivered
- Purchase order number
- Description of the goods
- Unit price of the goods
- Total amount charged for the goods.
- Tax payments if relevant.
- The credit terms given to the buyer.
- The payment terms including the method of payment and date of payment
Multi-Part Form Invoice
Invoices are often used for different purposes. Multi-part invoices provide multiple copies of the same invoice to be used as appropriate. For example, a business might issue four part invoices and utilize it as follows.
- Top copy is the invoice itself which is sent from the seller to the buyer.
- Second copy is retained by the accounts department and shown as outstanding until payment is received from the buyer.
- Third copy is sent to the warehouse and used to provide the information to produce a goods dispatch note. This note enables the goods to be sent from the warehouse to the buyer.
- Fourth copy is sent to the sales department and retained with the original quotation and sales order as evidence of the sales transaction.
Invoices are one of many accounting source documents used in double entry bookkeeping to update the books of prime entry. Usually, the seller will use a copy of the invoices sent to the buyer to enter information into their sales journal, and the buyer will use the invoices received from the seller to enter information into their purchases journal.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.