what's an invoice why is it important
what does it even look like you'll find
the answers to all of these questions in
this video hey viewers I'm James and
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accounting basics in today's video we're
going to talk invoices you'll find out
what invoices are why they're important
and I'll talk you through the key
features with an example don't forget to
watch this video through until the end
because I'll be answering some common
questions that'll made this whole topic
seem a lot clearer invoicing is an
essential part of any business whether
you're working for yourself for a
corporation if you want to get paid
you've got to know what invoices and how
to use it so what is an invoice let me
explain a normal business transaction
involves two parties a buyer and a
seller the seller provides goods or
services to the buyer and in return they
want to get paid this is a transaction
so that's the whole point so the buyer
owes money to the seller how much
exactly and what specifically are they
paying for and how long do they have to
make the payment to answer all of these
questions the seller sends them an
invoice which sets out all of this
information so the buyer knows what they
owe
they've gone itemized list of all of the
goods and services that they're paying
for and they know the terms of the
transaction they're happy so they send
the money to the supplier and the
transactions complete I've got bills
I've got to pay bills and invoices are
actually the same thing they relate to
the document that is sent to the buyer
to request the payment for the goods and
services that have been provided by the
seller right so now I've got a feel for
invoices are but why are they important
well for starters and we've touched on
this already sellers want to get paid so
it's important to them that invoices are
sent out as early as possible so they're
not waiting around for that cash the
government is also keen on invoices most
countries charge some form of sales tax
on transactions involving taxable goods
and services GST v80 state or provincial
tax you might have heard of some of
these an invoice
a record of the transaction that splits
out and identifies the sales tax so
they're actually required by law for
transactions involving registered
businesses if you'd like to know the
specifics then I recommend you check out
your local tax authorities website from
an accounting point of view invoices are
also important because they trigger the
accounting entries in the books of both
the buyer and the seller they're used to
track accounts receivable and accounts
payable so we know what invoices are and
we know that they're important but what
it actually look like let's create one
and find out there are plenty of ways to
make invoices Google sheets actually has
a built-in invoice template if you need
to fire one off quickly but if you want
to be more organized and have the
ability to track payments and make
reports then I recommend use some sort
of cloud accounting software like
QuickBooks Online Xero or FreshBooks
I'll link to all of these down below
here we've got an invoice that I've
thrown together using the sample company
from QuickBooks Online this is a very
typical invoice layout so it's a great
place for us to start and run through
all of the key features first of all
we've got the names and addresses of
both the buyer and the seller who's this
transaction between well in this example
we've got Craig's design and landscaping
services selling two cool cars and on
the other side we've got the invoice
number 103 8 this is a unique number
that identifies the invoice usually
invoice numbers are sequential so the
next invoice raised by this company
would most likely be 103 9 below that we
have the invoice date in this case it's
the 17th of Jan this is the day that the
invoice was created and it's critical to
include it because it starts the
countdown when the payment is due from
the buyer and how long have they got
well that's determined by the sale terms
which in this case is net 30 days so the
whole payment is due within 30 days of
the invoice date that's a common wait
time but terms can vary depending on
what's been agreed 30 days after the
17th of Jan is the 16th of February day
that we can also see here next we have
the description of the goods and
services that this invoice relates to in
this case it appears to be some kind of
custom design work it's best to be as
specific as possible in the invoice
description because you don't want to
cause any confusion and delay that
payment to the right of the description
we have the quantity rate and amount
here the service has been provided just
once and the amount
per-unit was for 350 dollars so in this
case both the amount and the subtotal
are for 350 dollars below that we've
tacked on a sales tax of 8% because the
taxable service has been provided that
comes out to $28 and that leads us with
an invoice total inclusive of tags of
378 dollars before we wrap up this video
I'd like to answer four common questions
that people tend to have when it comes
to invoices question 1
when should I invoice invoices are most
commonly sent out after the goods and
services have been provided however they
can also get sent out before depending
on what's been agreed between the two
parties however the accounting treatment
in each situation is different question
2 our invoices and sales receipts the
same thing the short answer is no
however this is confusing because there
are a few similarities both serve as
evidence of a transaction and both are
produced by the seller and given to the
buyer however the key difference is then
invoiced as a request for a payment so
it's issued before the payments be made
where is a receipt that's issued after
question 3 what's the difference between
a sales invoice and a supplier or a
purchase invoice well they're actually
the same thing they're both invoices the
difference in their names depends on
your perspective if you're the seller
then you call it the sales invoice and
if you're the buyer you'd call it a
supplier or a purchase invoice finally
question 4 is an invoice legally-binding
in general no they're not an invoice by
itself isn't legally binding if they
were then what would stop me from just
making all the money by just pouring out
invoices to whoever you want in order
for them to become legally binding both
the buyer and the seller have to agree
on the terms I can't speak for the
specifics of your country but in general
it's important that both sides have
evidence of the agreement at least an
email or better yet in a signed contract
you don't want to be that person that
gets in a situation where the client or
customer is refusing to pay because that
sucks
pretty bad I hope that helps clear up
some of your questions about invoices if
you've got any more let me know down in
the comments below and thanks for
watching today's video if you found it
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