When you hear of the term source documents, the first thing that should run into your mind is an invoice. For some, vouchers may be what they remember first. For others, it’s a receipt. However, all of these are types of source documents. In this lesson, the focus is on the invoice as evidence of payment.
What is the invoice?
Invoice is a source document used as evidence that a sale or purchase on credit took place within an organization.
A brief explanation
Invoice is a source document for credit transactions. Some businesses may use invoices for cash transactions. This, therefore, replaces Receipts.
When goods are purchased on credit, the vendor or sales representative issue an invoice. To the buyer, the received invoice is a purchase invoice. However, to the vendor, it is a sales invoice.
Advantages of Invoice
Aside from invoices serving as evidence of payment, invoices have other advantages.
Record Purpose: Invoices serve as records for all transactions that took place in a firm. In Nigeria company law, the directors of. The company must cause accounting records to be kept for that business. Although these apply to companies, small businesses either registered or not must comply with this law. Therefore, keeping invoices serve such purposes.
For tax purposes: Payment of tax is a most for every business. If taxes are not paid, it implies that such a person is a disobedience citizen of the country. Keeping invoices, especially if the firm does not have an accounting system in place, can be very useful for taxes.
Market knowledge: A good reason for keeping invoices is to understand the firm’s market. Invoices, when examined, can provide useful information the business can be utilized for the betterment of the company. For example, a firm sales invoice can provide information on customers’ buying patterns. This will help the businessman to know when to increase inventory and when to buy fewer stocks in the firm.
For control Purpose: Invoices and Other source documents are used for internal control purposes. With such control in place, it is easy to locate errors within the firm. Without these invoices being kept, it becomes difficult to control how much money goes in and out of the firm.
To detect fraud: There is a saying that every day for the thief, one day for the owner. Yes, with invoices keep in check and it’s movements under control, it is easy for the firm to detect fraud within the organization. Also, it becomes difficult to steal in the firm. Furthermore, any thief will be apprehended as soon as possible.
Format of an Invoice
An invoice generally has the following information available.
Date: The date when entered revealed when the transaction occurs.
Name of Business: The name of the business (mostly the vendor) must be incorporated into the invoice. It shows were the invoice originated from.
Name of buyer: There should be a column where the buyer writes his or her name in the invoice.
Description: In this column, the vendor writes the description of the goods brought by the buyer. It may or may not include the quantity of the goods brought.
Quantity: This is the column where the number of goods brought is written.
Price: Here the price of the good per unit is recorded.
Amount: Here the total amount of each quantity of goods purchased is written. It is gotten by multiplying the quantity column by the price column. For example, if the quantity of goods brought is 20 units and the price is 1000 Naira, then, the amount shall be 20,000 Naira.
Next, creating a simple invoice from Microsoft Word on a mobile phone will be explained.