9 Types of Invoices and How to Record Invoices Journal Entries?

9 Types of Invoices and How to Record Invoices Journal Entries

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Last Updated on March 7, 2024 by Qusai Ahmad

What is an invoice?

An invoice is a confirmation document between the buyer and the seller that records a completed transaction.

An Invoice can be sent either as paper or electronically to the customer.

What is an invoice used for in accounting?

Sellers want to get paid, so it’s important for them to issue invoices as soon as possible to get their cash fast without any delay.

When two companies (a buyer and a seller) make a transaction, the seller issues an invoice to the buyer requesting a specific amount due to the goods or services provided by the seller.

And when the buyer pays the required amount, the seller issues a receipt voucher to the buyer.

Importance of invoices in accounting

  • An invoice is a document to use for requesting payments on time from clients or customers.
  • To keep an account of the sales or supplies.
  • To make it easier to track the inventory.
  • Invoices can be used as historical data to help with budgets.
  • To track business income for tax purposes.
  • providing evidence of a business’s financial health

The difference between an invoice and a receipt?

The main difference between an invoice and a receipt is that an invoice is issued prior to a payment being made and the receipt is issued after a payment is processed.

The invoice is a payment request which means that the seller issue the invoice before the buyer pay for the goods or services provided, on the other hand, the receipt is proof of payment given to the buyer.

What Are the Different Types of Invoices?

There are 9 main types of invoices:

1- Pro-forma invoice

A proforma invoice is an invoice used to request payment from buyers for goods or services before they are supplied.

2- Interim invoice

An interim invoice is all about breaking down the cost of big projects into smaller payments. Instead of one invoice after the project concludes, you send several invoices with smaller amounts as the project progresses.

3- Final invoice

A final invoice is a request for payment for a completed project, service, or product and it includes all the information a customer needs to understand everything they are paying for.

4- Recurring invoice

A recurring invoice is an invoice a seller sends the invoice when the customer order the same products or services on a consistent basis, and this invoice is usually sent on a weekly or monthly basis without any changes on the invoice.

5- Commercial invoice

Commercial Invoices are used by governments to determine the true value of goods when assessing customs duties, it’s an important document in export transactions.

The exporter prepares it after the execution of the export order giving details of the goods shipped, and it’s also evidence of the contract of sale or purchase.

6- Timesheet invoice

A timesheet invoice is when a business uses the employees working house on a project to charge the customer, and it’s used by companies that provide services based on billable hours.

Companies use timesheet invoices as a part of improving employee productivity and retention.

7- Past due invoice

A past-due invoice is an invoice issued by a vendor as a reminder of a payment that has not been paid even though the due date has passed.

8- Credit Invoice

The credit invoice or “credit memo” is an invoice used by small businesses by the sellers or buyers and it’s used when something went wrong or the supplier has to offer a discount or a refund to the customer.

9- Debit invoice

A debit invoice “Debit Note” is issued by a business that needs to make adjustments to an existing bill.

We use debit notes when we want to adjust an invoice when the customer needs to return faulty goods, or when the supplier needs to ask for more money after undercharging a customer.

Elements of An Invoice

Let’s go through an invoice and check the elements of the invoice:

Here is an invoice we issued as an example for our lovely visitors It’s time to go through it line by line, the main elements of an invoice are as follows:

  • Invoice Number: Each invoice has its own number which helps companies control their invoices and not mix any of them.
  • Business Logo: To make it easier and more professional you should include your business logo in your invoice.
  • Business Information: Write your address and phone number with your tax ID number.
  • Customer Information: Identify your customer, including their name or their business name and their tax ID number.
  • List of items: Every invoice must contain the items purchased, either products or services along with their prices and quantities, also don’t forget to add as much information as you need.
  • Net Total: You have to create a line showing the entire amount your customer owes you. The total amount covers all the products or services included in the invoice.
  • Discount rate: Sometimes the seller gives the buyer a discount on the transaction, and when this is the case make sure to add a line showing the discount rate and discount value.
  • Tax Rate: Depending on the business process, there are many tax rates that must be calculated and placed on a line in the invoice
  • Invoice Total: Now this is the invoice total after cutting the discount and adding the tax to the net total.
  • Amount Paid: In some cases the buyer pays the seller a small amount before issuing the invoice, if that is the case then you should add a line that contains the amount paid and deduct it from the Invoice total.
  • Legal Terms: If there are any terms that should be added then this is the best place to write them, maybe there will be additional charges if they pass the due date.

Tips for creating accurate and legible invoices

Accurate invoicing is key to building a professional environment inside and outside the business and here are some tips for building an accurate invoicing:

  • Use standard formatting: Using standard format invoices is important so it can include all the important information about the a and both parties.
  • Use Specific language to avoid misunderstandings: You have to use specific language and keep the invoice directly to the point to avoid any misunderstanding from the invoice receiver.
  • Read the invoice before sending it: Reading the invoice before reading it is important to avoid mistakes or missing information, this will help you in avoiding any unnecessary debit or credit notes in the future.
  • Check whether the party receiving the invoice is exempt from paying taxes: There are certain entities that are exempt from paying taxes. It is preferable to check whether the entity receiving the invoice is subject to tax or not.
  • Always include a due date: The invoice is an official request for payment, so adding a due date makes it clear to the customer. It also helps avoid any ambiguity about when the payment is expected to be paid.
  • Include your payment types accepted: It’s always good to include your payment types accepted to make it clear and easy for the payer to pay your money.
  • Mention any late payment fees: If there are any late payment fees, then they must be included in the invoice to make things clear for the payer and force them to pay on time.

Recording Journal entries for invoices

When it comes to recording invoices, we need to take two points into consideration:

  • Did I buy or sell?
  • Cash or Credit?

If you sell then that’s a sales invoice and the way to record a sales invoice is:
Dr. / Cash or Bank or Account Receivable

Cr. / Sales Account

But if you purchase then the way to record the invoice is:

Dr. / Expense or Asset

Cr. / Cash / Bank / Accounts Payable

Conclusion

Invoicing is one of the most important thing a business must do.

We discussed the 9 types of invoices and how to create an accurate invoices.

Hope you found our article helpful.

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