5 things you think you know about invoices

Of course, we all know that invoices are used for trading activities of a business entity. But there is other stuff you might not know about these important source documents required in businesses. Here, we have discussed 5 things you think you know about invoices. These include the meaning, importance, types, contents, and software.

1. Meaning of Invoice

An invoice is a source document that serves as evidence of a trading transaction. When buying and selling takes place, this document is usually provided as proof. Therefore, we can say that a trading transaction does not take place if invoices are not presented. Aside from serving as evidence, it informed the buyer or client of the total amount and quantity of the goods purchased. They are not used only when goods are purchased for resale. When items of property, plants, and equipment are acquired an invoice is presented.

2. Importance of Invoices

The importance and uses of an invoice are explained below:

Evidence of trade

The document serves as evidence that a trade occurs. It is also used in service businesses and shows that a service has been done by the firm on behalf of a client.

Serves as a request for payment

Generally, an invoice is a request for a payment’s document. It tells the buyer that he should make the necessary payments for the goods acquired or the services provided. A proforma invoice serves as a reminder of a previously issued document.

Description of transaction 

This document shows a description of the transaction that occurs. It usually describes what was purchased, the quantity, the par price, and the total price.

Posting to subsidiary books

As said earlier, without a source document, there is no proof that a transaction occurs. Therefore, there will be nothing to post into the books of accounts (subsidiary books and ledger books). In the other way round, with this document posting into the subsidiary books will be possible. 

Used in the audit trail

During the audit of the financial statement, the auditor will need to carry out an audit trail. The trail is usually from financial statements to source documents and vice versa. This implies that invoices must be handy within the organization for the trail to be done correctly. 

3. Types of Invoices

Sales Invoice

A commercial invoice that is received by the buyer during a trading transaction or to a client in a service transaction.

Purchases invoice

Also, a commercial type issued by the seller, vendor, or supplier (whatever it is called) in a trading transaction. The copy of the invoice that is kept by the business is the purchase invoice while that of the buyer or client is the sales invoice.

Proforma invoice

These are invoices used to remind the buyer and another third party of the payment yet to be made on the previous invoice. 

Commercial invoice

This is the general invoice that is used in trading transactions. They include sales and purchase invoices as explained earlier.

Debit and credit notes

These are invoices usually printed in red. They are used to correct errors in commercial invoices. If a sale of goods was overstated a credit note is initiated to correct the overcharge.

4. Contents in an Invoice

An invoice must contain the following information.

• Name of the issuing organization
• Name of the buyer
• Date of transaction
• Details of the transaction
• Quantity of the items
• Total amount 
• A note such as “Thank you for patronizing us”

5. Invoice software you can use in your business

Before now, invoices were inscribed in stones. Later on, they were provided in leaflets and notes. As a result of technology, invoices are now available in software. A single invoice on a phone or computer device can be shared with hundreds, if not millions of persons. Most accounting software has invoices inbuilt. QuickBooks and Sage 50 are very popular examples. With these, small businesses can send automated invoices to their clients and customers after a transaction to their emails.