Invoicing

What is invoicing?

An invoice is issued by any entity or person for given any service or product to another party (Customer). It’s a confirmation & detail about the service or product. In your daily life you should have received hundreds of invoices for the services & products you bought. It’s also has a legal power to show that the service & products have been delivered. Normally invoices are issued by accounting or ERP systems nowadays. Still some small businesses are only issuing invoices manually in writing in a paper. When invoices are issuing by systems, it automatically keeping the journal recording in the ledger (Please refer below journal entry section for detail journal entry).  Sometimes system is not recording the journal entry for invoices, if there is no embedded ledger in the ERP system. Then a person has to take the invoice list out from the system and have to record in the ledger separately. Due to most of the business entities are using accrual method for the income recording (Revenue), invoice is the main and most suitable method for revenue source. Normally customer pays after receiving the invoice and pays the amount only in the invoices. There are legal requirements and controls in the invoice issuing as well as in the accepting invoices.

Evolution of Invoicing (History of Invoicing)

The birth of the invoice can be identified even in the Stone Age too. That saying can be funny, but here I mean that the Stone Age humans have used communication method by stones and woods. Any how we can guess that the formal invoicing started after the invention of paper. In the 80s and 90s where the absence of automated systems, entities issued invoices by paper and with hand written details in there. Same time the invoice issuing person or accountant has to record the invoice income in the ledger separately, but nowadays we can see that most of the entities are using automated systems to raise the invoices & record same time in ledger. The method of hand written invoices is now out of date.

Types of Invoicing

Invoice categories can be classified as Manually Written invoices/System Generated Invoices and according to the time of invoicing,

According to how issued

• Manually Written Invoices

These invoices are issued writing manually by hand in a paper and this method is out of date now. This method was used in many eras until the automated systems are coming to the function in to businesses.

•  System Generated Invoices

Most of the companies are issuing system generated invoices nowadays. Even in the small businesses, we can see that the invoices are issued using a computerized method.

According to the time of invoicing

• Pro-forma invoice

This is normally request by the customer before purchasing the goods or services. This is similar to the quotation, but it’s issued in the invoice format. This is just nominal invoice and there is no legal bound or recording double entry for this.

• Interim Invoice

Interim invoice are issue when there is big amount of goods or huge project is going on. The purpose of the interim invoicing is that charging for the goods or services up to date or as at any point. This is done for accruing income for the period or avoid working capital issues most of the time.

• Credit Invoice

Credit invoice is issued at the time of returning goods or decrease the over charge for good or services. It’s issued by the customer side. Most of the time this is very essential at the time of ledger recording of goods return.

• Recurring Invoice

If any business have given service or goods over a time period, this type of invoices have to be raised. As an example if a business is invoicing for a rented place, the agreement could be 5 years, but invoice is sending monthly.

• Final Invoice

Final invoice is issuing after providing all ordered goods or service to customer.

Journal Entry for Direct invoicing (Main Invoicing)

Invoicing is the main source for accruing income to the income ledger. The main journal entry for invoicing is as follow;

Receivable (Debtor) Ledger                Dr

Income Ledger                                  Cr

Journal Entry for Miscellaneous Invoicing

In this scenario you have to use miscellaneous income ledger, because this is kind of an ad-hoc invoicing & this does not happen in the day to day process.

Other (Miscellaneous) Receivable Ledger             Dr

Other Income Ledger                                         Cr

Process of Invoicing

• Confirmation from selling department or customer
• Entering data according to the rate card and issued goods with the description
• Printing the original invoice and issuing to customer(After reviewing)
• Posting to the ledger

Tax impact on Invoicing

There is no standard format for the invoice, but when you issue a tax invoice there are certain features which need to mention properly and necessarily in the invoice. Local tax authorities are normally requesting following details in the invoices.

• The Name, Address & the tax registration number of the supplier
• The Name, Address & the tax registration number of the customer
• Invoice serial number
• Date of issue
• Description of the goods or services
• Quantity or volume of the service or goods
• Value of the supply and the tax charge amount
• Header wording as “TAX INVOICE”

New Trends in Invoicing

Virtual invoice

Nowadays we are receiving the soft copy invoices for the services we get such as telephone, internet, satellite/Cable TV. It’s a cost saving and paper saving method which follows most of the businesses. Customers also very keen about the easy ways of receiving invoices.

Real time invoicing

You can experience now businesses invoicing your service in same time online via systems.

Invoice Format