What Is a Sales Invoice in Accounting Terms?

A sales invoice is a fundamental component of business transactions. The information it contains and the way it is written ultimately impact the company's operations and financial statements.

Definition

A sales invoice is a document requesting payment for goods sold or services rendered. The document usually specifies the quantity and nature of the goods or services involved, the date and the invoice number.

Examples

Sales invoices vary by the type of good or service sold. Common examples include quantity-based invoices for physical goods, time-based invoices for professional services rendered and progress billings for construction projects.

Effect on Income Statement

Accountants record sales invoices by debiting cash or accounts receivable and crediting revenue and tax liability. This entry increases gross revenue on the income statement and also increases cash and tax liability on the balance sheet summary.

Freight On Board

Sales invoices for physical goods often specify FOB (Freight On Board) shipping point or FOB destination. This notation specifies whether title transfers at the shipping point or the destination, clarifying the party liable for damage incurred in transit.

Invoices for Future Services

Some businesses, such as private attorneys, issue invoices for future services. Firms using accrual basis accounting must hold that revenue as a deferred income liability until the services are rendered.

References

• Investopedia: Invoice
• Investopedia: Deferred Revenue
• Accounting Coach: What is the significance of FOB Shipping Point and FOB Destination?

Resources

• MicrosoftOffice: Sales Invoice