Finding it difficult to differentiate between a purchase invoice and a sales invoice?
Invoicing is indeed a time-consuming and complex process, and one of the tasks in best invoicing practices is separating purchase invoices and sales invoices. Unfortunately, this is where almost every new beginner makes mistakes.
And mixing up purchase invoices and sales invoices can cost you much more than late payments. In addition, it can mess up the entire demand-supply chain of your business. Thus, to keep you aware of the difference, let’s compare purchase invoices vs sales invoices. After reading this blog, you will be able to define, separate, and use the invoices for the best of your business.
So, let’s begin with the definitions.
Table of Content
What is a Purchase Invoice?
A purchase invoice is a document produced by the purchaser to confirm the purchase order. It is generated after the purchase order is delivered. It verifies all the goods and services purchased by the business and records the sum of money to be paid to the supplier of the goods and services.
The invoice date for a purchase invoice is the delivery date of the purchase order, and the due date is the date until the purchaser is expecting to make the total payment.
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What is a Sales Invoice?
A sales invoice is a document for billing a customer for the goods or services provided. It is generated by the supplier of the goods or services. It lists down all the items sold with respective quantities and rates in accordance with the sales order. It is issued when a supplier wants to request payment from the customer. Hence, it highlights how much money the customer owes.
- Invoice date
- Invoice number
- Supplier branding (business name, logo, contact information)
- Customer details
- Itemized lists of goods sold and services provided
- Applicable sales tax and discounts
- Payment terms and conditions
- Seller signature
After knowing the basic definitions of both legally binding documents, it’s time to point out the fundamental differences in both types of invoices.
What is the Difference Between a Purchase Invoice and a Sales Invoice?
If you are a new business owner, the difference between a purchase invoice and a sales invoice may be a thin line. However, it is very common to be confused between the new beginners and especially for one without accounting experience.
Hence, let’s differentiate both of them in a table for clear understanding.
|Purchase Invoice||Sales Invoice|
|A supplier receives one||A supplier sends one|
|A purchaser sends the one||A purchaser receives the one|
|Issued by the customer||Issued by the vendor|
|Mentions account payable||Mentions account receivable|
|It confirms the purchase order||It confirms the completion of the order|
|Used to track company expenses||Used to track company revenue|
|Tracks inventory cash outflow||Tracks inventory cash inflow|
How Purchase Invoice and Sales Invoice Works?
Now that we know the difference clearly let’s know-how purchase invoices and sales invoices work.
Since the purchase invoice is generated before the sales one in the accounting process, we will start with the purchase invoice.
When the supplier fulfills a purchase order, the customer generates the purchase invoice to ensure the delivery of the goods or services is according to the payment agreements such as quantity, quality, and time of delivery in purchase orders and quotations.
To create a purchase order, you need to mention the contact information of both the parties (seller and the buyer), the list of goods or services rendered, the total price of purchased items, the total cost, accounts payable, the due date, and the late fees.
A purchase invoice is mostly created for the internal documentation of the goods and services purchased. Having said that, customers do send the purchase invoices to the sellers to make the transactions as transparent as possible. This brings both parties on the same page, and both can cross-check the records and be accurate with the payments.
When the seller receives a purchase invoice, they tally it with the purchase order of the relevant trade. Besides making the invoice accurate, it helps the seller keep records of every business and know when to expect to get paid by the customer.
Once the seller is certain about the purchase invoice, he/she issues the sales invoice to the customer, which brings us to the next part.
After the customer receives the sales invoice from the supplier of goods or services, the customer forwards the invoice to the invoice processing department to match it with the purchase requisitions and sales orders before the approval.
The final amount on it may differ from the amount on the purchase invoice of the same purchase order due to the variations in the applicable tax, price of the goods purchased, and rates of the services availed.
A sales invoice includes seller terms such as the preferred payment methods, due date, and breakdown of the accounts receivable. This helps the customer with the payment instructions and to pay the invoice to encourage early payments.
If the sale invoice is created and sent via InvoiceOwl —the invoicing app, the seller has the option to add the payment button. All that a customer needs to do is just click the pay now button.
Furthermore, it also works as a document for calculating the tax. By recording all the sales, a company can easily track the business done in the year and pay accurate tax effortlessly.
What is the difference between sales and purchases?
Sales is the term used for the products/services sold by a business. It generates the revenue of a business. It is the activity of selling commodities to the customers.
Purchases are used for the products/services bought by a business to keep the business in function. It adds to the business expenses when companies purchase goods or services. It is the activity of buying commodities from a supplier.
For example, the paper sold is the sales of the paper company, and the raw material brought to manufacture paper is called the purchase of the paper company.
How can an invoice be both a purchase invoice and a sales invoice?
An invoice can be both a purchase invoice and a sales invoice if the invoice is generated by a neutral third party to acknowledge the transaction.
Are sales invoices and purchase invoices the same?
No, sales invoices and purchase invoices are not the same. Both the invoices serve different purposes. However, a purchase invoice helps the supplier to issue the sales invoice and vice-versa.
How do I make a professional invoice?
Making a professional invoice can take a lot of your time if done manually. Thus, automate the whole process by using one of the most popular accounting software —InvoiceOwl. Unlike most accounting software, it lets you create unlimited unique professional invoices with the help of ready-made templates. These invoice templates are highly customizable and offer the ‘pay now’ button as well.
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Getting confused between purchase invoices and sales invoices is more common than you think. Since not everyone is from an accounting background, it is quite understandable.
But, now, after reading this blog, we hope you know how to distinguish between two and use them for the best practices in your business. In this blog, we discussed the basic definition of both types of invoices, learned the difference between them, and how they work for the best of the business.
If you want to create the best invoices (purchase or sales) for your business, download the InvoiceOwl app now! It helps you create professional invoices and get you paid quickly. And not only that, it generates sales records for your company and enables you to keep track of every sale/purchase of the company.