Entrepreneurs and business owners will usually have to deal with accounting and bookkeeping tasks to keep their business running. However, if you are a new business owner, these tasks may not be as easy as you initially think. Having a basic understanding of accounting and bookkeeping will help you understand your financial data and make sound business decisions.
What Is the Difference Between an Invoice and a Receipt?
Most people new to accounting do not understand the distinction between an invoice and a receipt. It is quite understandable why some entrepreneurs may be confused between the two as they have some similarities. This blog post will shed some light on the differences between invoices and receipts and how spotting the differences can help you learn the tricks of the trade.
What Is an Invoice?
A seller generates an invoice to get paid for specific products or services delivered to a client or customer. An invoice may be delivered electronically or personally from the seller to the buyer. An invoice will contain all the pertinent information and details of the transaction, including the specific goods or services provided, total cost and quantity of the items and modes of accepted payment.
What Is a Receipt?
On the other hand, a receipt is given to the customer as proof that payment has been made. A receipt will only be generated once the amount specified in the invoice has been settled. It will indicate that the transaction has now been completed. It would mean that the customer has sent as payment for the goods and services rendered and that the seller received the funds.
Similarities That Cause Confusion
There is a lot of common ground between a receipt and an invoice. The shared information between them is why many entrepreneurs sometimes interchange the two. Both have details about the buyer and seller, the amount involved in the transaction, and specific information about the goods and services involved in the transaction. These similarities may cause a first-time tax preparer to get confused.
The key difference between the two is that an invoice is generated before payment is made. It is usually sent to the customer to request for payment. On the other hand, a receipt is given by the seller or merchant to the customer after payment has been made. It is given to the customer as an acknowledgement that the transaction has now been completed and the payment has already been received.
It is essential to know the difference between the two, especially when creating financial documents. Invoices will fall under receivables, and receipts are to be filed under the company’s income.
Invoices and receipts are essential for bookkeepers to keep track of the amount of income generated by a business. Both are needed for bookkeepers to successfully file income tax returns and generate accurate financial statements and documents. Lastly, you will avoid getting into trouble with the ATO by ensuring that all the information you submit is true and correct. Knowing receipts and invoices will enable you to fill out the necessary information accurately.
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