What is a Purchase Invoice?
So what is a purchase invoice? You might find that a strange question. You might think its very straightforward. You maybe know exactly what a purchase invoice is. But what I find is so often in Xero people get confused and they’re not quite sure what a Purchase Invoice or a Bill as Xero calls it is. And then they might enter transactions that I would say are not Purchase Invoices, that are Receipts and they will enter them in Xero as Purchase Invoices, which I would say is incorrect to do.
What is the dictionary definition of a Purchase Invoice?
If we went to the dictionary we would get a definition and it would say something like …
“A Purchase Invoice is a commercial document between a buyer and a seller. It will show the goods that have been sold or the services provided. It will show the cost of these items, and when and how payment needs to be made”.
What do we expect to see on a Purchase Invoice?
So let’s talk about what we would expect to see on a Purchase Invoice. Here’s an example of a typical Purchase Invoice.
It’s been produced in Xero, so the format should look quite familiar to you, you won’t be surprised by it. So what’s included on this document?
The word “Invoice”. It sounds so straightforward. It might say Sales Invoice, it might say Tax Invoice, but we’d expect to see that word on our document.
We would expect to see the Supplier. Who’s provided the goods or services? – name and address.
We would expect to see a date on this document.
We would expect to see an invoice number, a reference number on the document.
We would expect to see the purchaser details. Again, name and address.
Details of the goods, product, or services that have been provided.
The price: what is being charged for these goods or services?
If VAT has been included, details of the VAT: the VAT rate charged and, very importantly, the supplier must show their VAT registration number.
On this document we would expect to see payment terms: how is payment to be made, and when is the amount due? Maybe payment is by bank transfer, maybe by credit card, or maybe payment has already been made.
So that’s typically what you’d expect to see on a document and you’d recognise it as a Purchase Invoice.
What isn’t a Purchase Invoice?
Okay, so what isn’t a Purchase Invoice? Well, what I’ve got is a couple of examples for you of what I would call Receipts, not Purchase Invoices.
The first one is from the Post Office. No surprise it’s for postage!
The second example I’ve got for you here is from
Aberdeen City Council and it’s for parking.
So these are smaller almost scrappy documents, if you like, that are Receipts not Purchase Invoices. So in Xero I wouldn’t expect to see these input as Purchase Invoices but what I would expect is, when the bank payments are made, the transaction is input as a bank payment and the document receipt is still possibly saved in Xero as backup.
So that’s it. Hope that difference is clear. You have a Purchase Invoice, you have a Receipt. Don’t get the two mixed up. And now I’m going to get off my soapbox.