Invoices Vs. Receipts: Know The Difference

It’s easy to confuse an invoice with a receipt, although it’s a mistake that your business must avoid at all costs. Both documents are itemized lists but differ vastly in the purpose they serve. The former is a payment request, and the latter is a record of payment. 

Read on to learn more about the differences between an invoice and a receipt.

The Main Difference

The main difference between an invoice and a receipt is in the time at which they’re issued. This ultimately relates to the function each performs.

• While an invoice is issued before a payment is made, a receipt is issued after
• By issuing an invoice, a business is requesting its clients to make a payment for the items or services that were provided. On the other hand, a receipt acts as proof that payment for a product or service has been made
• As a result of this key difference, invoices allow businesses to track and record sales. A receipt is used by buyers attesting to the amount they have paid for an item

Example Of A Receipt

Now that you have a better idea as to what an invoice and receipt is, let’s delve a little deeper and learn what’s involved in a written acknowledgment of payment.

The main information on this document comprises the amount paid by the client, the date on which this amount was paid, and the method of payment. In the example below, the amount was paid via credit card. 

Source:   https://www.jotform.com/pdf-templates/payment-receipt-template

A business hands over this document to the client as proof of the transaction. This typically happens as soon as the payment has been made. This record of payment can also include a contact of the business that generated it. This can be used for future correspondences or any discrepancies that may arise later.

Example Of An Invoice

Below is a sample invoice that can help you visualize some basic differences when it comes to an invoice vs a receipt. This document outlines the services that a business has provided to its client. Next to the list of services is the cost of each. Statements also contain a unique ID. This is a number specific to each bill. It’s used to reference and track the progress of payments. Sometimes, this number also makes its way into an invoice receipt. 

Furthermore, the document lists the total amount owed and the payment deadline. After it’s updated with all the necessary information, it’ll then be sent or given to a customer as a formal request to receive payment. 

Source: https://www.waveapps.com/invoice-templates

Payment Receipt: What Is It?

Payment receipts are documents in accounting that verify a complete or partial payment made for the products or services received by a customer. Generally, some or all of the following information goes on an invoice payment receipt.

• Name of the business conducting the transaction
• Verification that the payment has been made
• Invoice number that the transaction is associated with
• Amount paid
• The date on which the amount was paid
• Payment method
• The remaining amount (not applicable in case of full payment)
• Return policy 

Why Receipts Are Crucial To Businesses

Now that you know what a receipt is, it’s important to learn why it matters for your business. These documents perform an integral role in accounting. This is because they’re the most fundamental source for safe record keeping. Not only are they important for a business to keep tabs on each expense incurred, but they also come in handy when it’s time for a tax audit.

Many businesses rely on these documents for error-free financial planning. This is due to the fact that a full collection of receipts forms a complete record of a business’s financial standings in terms of expenses. This record acts as historical data for a business’s current and long-term liabilities. Companies can then formulate an operative budget based on this information.

The more accurate the record keeping is, the easier it’s for businesses to keep tabs on their financial growth, generate reports, and track room for deduction of these expenses in the future. Doing all of this ultimately enables a company to make the most of tax returns.

No Receipt? Can I Still Claim Expenses?

Typically, businesses aren’t allowed to file for tax claims in the absence of a receipt since it implies the absence of any proof of purchase. Tax auditors require you to back your claims of deductions on tax returns with an accounting document. In times like these, even a bank statement may prove insufficient. Therefore, a complete sales receipt will be needed to match the claims.

The Bottom Line

Knowing when to create an invoice or receipt is the first step to understanding transactions. Business owners must learn to keep a record of both to better prepare for tax audits and future financial planning.