Like how we relate bills and invoices together in our previous article, we also need to discuss the relationship between invoice and receipt. Like the previous pair, the terms ‘invoice‘ and ‘receipt‘ are also used interchangeably by both consumers and businesses. In fact, they are mashed together so often that any layperson thinks that there isn’t any difference between the two. However, we all know that it’s not the case. Otherwise, we wouldn’t have this discussion.
As a business owner or someone who has a background in accounting, you probably know that these two are completely different. But to educate the general public who are not aware of that fact, this article will serve as a guide towards determining the meaning and key differences that will put invoice and receipt apart.
Understanding Invoice Vs. Receipt
As mentioned in the previous section, the majority of the common people, as well as small business owners who are just starting, are oblivious to the difference between invoice and receipt. To make it even more of a concern, a recent study claims that 10 to 20 percent of late payments are due to incorrect information on an invoice.
So, if you are getting late payments, it’s probably because you’re mistaking an invoice for a receipt. It could also be the other way around.
Why People Make This Mistake?
Let’s discuss why people even make the mistake of using both invoices and receipts interchangeably. First, both are documents that are vital for accounting purposes. Both came into play when a buyer and seller agreed to do business via a transaction. This involves an exchange of said of either goods or services for a corresponding payment.
Both invoices and receipts are also used to record the amount of money owed and paid for regarding the goods sent or services rendered. Both are also considered as legal documents.
From everything that we’ve discussed so far, you can tell that there seem to be plenty of similarities between invoice and receipt. These are the reasons why some people mistook both to be the same thing. However, both have distinct differences that will separate them completely. To help you understand one from the other, we will discuss each term’s meaning and how they differ from each other.
What is an Invoice?
An invoice is a document that details a request or a bill for payment in a transaction. It is issued by the vendor to the customer. A critical aspect of an invoice is that it’s a legally enforceable document. An invoice is a request for payment on certain goods and services. That means the vendor can use the invoice to detail goods or services and legalize and ensure that payment is made.
However, you should keep in mind that an invoice isn’t just for requesting payment. It also provides all the information needed in the entire transaction. Details that are included within an invoice includes the following:
- Names of vendor and customer
- Contact details of vendor and customer (address, phone number, email address)
- List of goods or services
- Corresponding price for each product or service
- Total amount to be paid
- Invoice number
To avoid any confusion, you should also know that an invoice is not a purchase order. A purchase order is a document issued by the custom detailing the items they want to acquire from the vendor. Other details include the quantities, as well as the corresponding price.
What is a Receipt?
A receipt is a type of document that serves as an acknowledgment from the vendor to the customer, stating that the payment has been received. It will serve as the customer’s proof that the payment has been made.
A receipt also acts as proof of ownership, confirming that the buyer already owns whatever item is listed. This document lists various bits of information such as the following:
- Names of vendor and customer
- List of items with the corresponding price
- Mode of payment
- Date of payment
- Receipt number
- Vendor’s signature
- Total amount payable
A receipt also serves as a legal document. It doesn’t always state what the payment has been made and the quantities of the items listed. That’s when an invoice comes in handy – it lists out the product or service that was the purpose of the transaction. However, if a receipt does state these elements, an invoice will be unnecessary.
Similarities Between Invoice and Receipt
An Invoice and receipt have several elements in common. That’s why people mistake them both to be the same document. Here are some of the similarities between an invoice and a receipt:
- Both are issued by the vendors.
- Invoice and Receipt serve as legal documents.
- Both mention vendor and customer information.
- In cases where the complete payment is made immediately, both invoices and receipts list the total amount.
Difference Between Invoice and Receipt
Here’s a summary of all the differences between both an invoice and a receipt, some of them are mentioned in Chron:
- An invoice is a payment request, while a receipt serves as proof that a payment has been made.
- All invoices are issued before the payment is made, while a receipt is issued post-payment.
- An invoice lists the total amount that’s due or has to be paid. On the other hand, the receipt details how much have been paid and what mode of payment was used to settle the account.
- If a vendor issues an invoice and payment is yet to be made, he can enter the payment as ‘Credit to Sales’ or a debit under ‘Accounts Receivable.’
- If a customer receives an invoice but hasn’t made the payment yet, he can enter the payment as a ‘Credit’ under ‘Accounts Payable.’ They can also enter as a ‘Debit’ under either an asset account or expense account.
- Invoices are sent to customers who will then need to make the payment. A receipt can either go to the customer or a third party as proof of payment.
- Invoice is used to keep track of the goods and services sold. A receipt acknowledges that a payment has been made.
As you can see, an invoice and a receipt are both different from each other. The difference lies in their usage. One is issued before payment is made, while the other is issued after as proof of payment. If you’ve been using both terms interchangeably for years, it can take a little bit of getting used to. However, the information outlined in this article will hopefully give you everything you need to know to finally distinguish one from the other. If you run a small business, the information that you learned from this guide will prove to be vital in the long run.
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