Q:

What is an invoice used for?

A:

An invoice is a document sent by a business to a client denoting an obligation to pay for goods or services. One primary purpose is to communicate the requirement to pay for the goods. The other is to document the transaction as an accounts receivable in its accounting system until the bill is paid.

An invoice is different from a receipt. A receipt is an acknowledgement of amounts paid for certain goods and services. Business-to-business providers often let customers make inventory and supply purchases on an account. If the buyer needs items but does not have the cash to pay, he might say, "Bill me later," or "Send me the invoice."

Many companies have electronic accounting systems. When an invoice is prepared, the inventory sold is pulled from the current amount showing in inventory. The invoiced amount is recorded as accounts receivable. While some companies treat an invoiced amount as revenue, it is possible a client may not pay the bill. With an invoice, the company has proof when it records a "bad debt," which removes the invoiced amount from revenue and reduces taxes.

The purchasing company needs the invoice to update its accounting records for accounts payable. This account recognizes the amount of goods purchased but not yet paid for; companies typically include the invoice when paying for goods to ensure proper recording of the payment.


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