5 Reasons Why Sales Invoice in Accounting is Important
Source documents are important in accounting. They serve as proof of transactions. You can use them to verify the accuracy of accounting records.
In particular, a sales invoice is a source document issued after goods or services are delivered. A sales invoice also shows details of the transaction. It provides information about the particular product or service is given, the date of transaction, the amount due, and the deadline of payment.
This article presents 5 reasons why a sales invoice in accounting is important.
Importance of Sales Invoice in Accounting and Business in General
The primary purpose of a sales invoice is to charge the customer for the service rendered or product delivered. Once a customer transaction is complete, a sales invoice is made and sent to the customer to request payment.
Further, the sales invoice provides the following benefits.
1. Accurate Bookkeeping
Sales Invoices, along with other source documents, create the foundation for bookkeeping. A sales invoice provides evidence for a sale transaction. Further, sales invoices are especially crucial for the accurate bookkeeping of small businesses. As smaller companies have to focus more on operations, they have very minimal time worrying about books.
Having a sales invoice allows small businesses the liberty to record sales transactions at a later time. This is of course possible as long as the sales invoices are intact, and when the business implements proper internal controls.
2. Efficient Inventory Management
Another benefit of sales invoice in accounting is that it improves inventory management. This is particular to businesses involved in the importation or selling of physical products. Sales invoice in can be used to track inventory movement. It shows the volume sold on a particular day, week, or season.
Additionally, you can use sales invoices to anticipate the timing of inventory replenishment. It can help you estimate or even compute your current inventory on hand. With this information, you can forecast how much inventory you need for the next few months.
3. Better Collection System
Timely issuance of invoices leads to timely customer payment. It is fairly important to send out invoices once the service is made or the product is delivered. The earlier you send them, the earlier the customers prepare and pay their dues.
4. Smoother Billing Process
Customers can get transaction details from the sales invoice. If the sales invoice is correct and complete, it results in fewer questions or disputes. It creates a smoother billing process. Furthermore, fewer customer queries minimize the time taken from billing to payment. Prompt payments show good operations management.
5. Informed Budgeting and Planning
Using a sales invoice in accounting provides information about the company’s ability to generate revenues. Sales invoices can help managers or business owners assess how well their revenue strategy is working. With this information, they can decide to continue with the current plan, or change strategies.
Moreover, sales invoices can help make precise budgets. With the amounts from sales invoices as historical data, the company can plot budgets based on previous experience.
Difference Between Sales Invoice and Official Receipt
A sales invoice is different from an official receipt (OR). Sales invoices are the primary evidence that proves that the business delivered the products or services to the customer. In contrast, an official receipt proves that the company has received the payment from the customer.
In small businesses or retail stores, however, transactions are usually very swift. Further, owners usually require cash payments from the customers at the moment the service or product is delivered.
As such, these businesses often only issue the sales invoice or official receipt. It would be very redundant and time-consuming to issue both sales invoices and official receipts. In consequence, the Bureau of Internal Revenue (BIR) requires that at the minimum, the business should offer either a sales invoice or an official receipt, or both.
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