Invoices record and itemize a transaction between a buyer and a seller. They are time-stamped commercial documents. When goods or services are purchased on credit, an invoice usually specifies the terms of the deal and explains the available payment options.
There are many kinds of invoices, including paper receipts, bills of sale, debit notes, sales invoices, and online electronic records.
The face of an invoice must state that it is an invoice. Invoices usually have a unique identifier called an invoice number that can be used internally and externally. Invoices typically provide contact information for the seller or service provider in the event that there is an error in the billing process.
On the invoice will be outlined any payment terms, discount details, early payment options, and finance charges imposed for late payments. Also included is the unit cost of an item, total units purchased, freight, handling, shipping, and tax charges, along with the total owed.
For inventory control, accounting, and tax preparation purposes, invoices track the sale of a product, which assists in keeping track of accounts payable and other obligations. Shippers often expect payment at a later date, so the buyer becomes an account payable and the seller an account receivable.
Accounting internal controls rely heavily on invoices. Invoice charges must be approved by management. When payment is approved for approved transactions, an invoice is matched to a purchase order and the information is reconciled. Auditing firms ensure that invoices are entered into the appropriate accounting period before testing for expense cut-off.