What is the Difference Between a Sales Receipt and an Invoice in Bookkeeping?
Many times in bookkeeping, we tend to confuse the concepts of a sales receipt and an invoice. Since both are important but are used differently, it’s good to know how to identify and differentiate them from each other. Below we will give you a summary of each of them and we will show you the main differences so that you can track your sales in a correct and organized way.
What is a sales receipt?
In general, a sales receipt is a bookkeeping designation that is used to record the sale of a product or service that has been paid for by the customer at the time of the sale. When issued to the customer or recorded in bookkeeping software, it serves as proof of a payment made by the customer. Sales receipts are useful not only for the customer to retain as proof of purchase, they also provide valuable bookkeeping information for your company. When recorded for bookkeeping, a sales receipt gives you information such as the amount of money you made from a sale, sales tax collected, products or services you have sold, the name of the customer that made the purchase, when the payment was made, and any other details that you want to add. It is a snapshot of a transaction that has already happened. Sales receipts are a record of payments already made.
What is an invoice?
An invoice is also a document that reflects the sale of a good or service. However, invoices are given to customers who have not yet paid for a product or service. In other words, it’s a bill that you give to a customer for money that they owe you. However, in bookkeeping, the word ‘bill’ is specifically used to refer to amounts that YOU, as a business owner, owe to vendors (AP). So instead of differentiating between types of bills by saying ‘bills that you owe’ versus ‘bills that are owed to you,’ the word that we use to describe payments owed to you from customers is ‘invoice.’ An invoice is basically a bill that you give to a customer that shows money they owe to you for a product or service. This is otherwise known as Accounts Receivable, or AR.
While a sales receipt is also very important, an invoice is more of a ‘live’ document. While a sales receipt shows what has ALREADY happened, an invoice shows a transaction that is IN PROGRESS. Because of this, invoices are used for tracking payments owed to you by your customers. Unlike sales receipts, invoices have a due date that a customer must pay by. It is important to keep track of invoices in a different way than sales receipts, because these transactions are not completed yet.
Differences between sales receipts and invoices
The main difference between an invoice and a sales receipt is the timing of payment. While they have the same function, a sales receipt shows the past. An invoice shows the present. A sales receipt is issued after, or at the time of payment, and the invoice is issued before the payment is made.
For example, if a customer buys donuts from your bakery and gives you cash at the same time you give them donuts, you record a sales receipt. If a customer buys donuts from your bakery ‘on credit’ and agrees to pay in 2 weeks, you issue them an invoice that shows how much they owe you and when.
While they’re similar in function, recognizing the difference between when to record a sales receipt and when to record an invoice is important. Recording them incorrectly can create messy books and inaccurate records, which can result in stress and complicated bookkeeping clean up in the future.
Need help recording sales receipts or invoices? Contact Fat Cat Bookkeeping and we’ll help you keep your books organized and your sales categorized correctly.