When dealing with invoice accounting entries, the focus is on recording the sale (if you’re the seller) or the purchase (if you’re the buyer). Below are examples of accounting entries for both sales invoices and purchase invoices.
1. Sales Invoice (Seller’s Perspective)
When you issue a sales invoice, you recognize the revenue earned and the receivable from the customer.
Example 1: A company sells goods worth $5,000 on credit and issues an invoice to the customer.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Accounts Receivable | 5,000 | |
| 08-01-2024 | To Sales Revenue | 5,000 |
Explanation:
- Accounts Receivable will debited to recognize the amount the customer owes.
- Sales Revenue will credited to record the income from the sale.
2. Receipt of Payment Against Sales Invoice
When the customer pays the invoice, you record the receipt of Bank and reduce the accounts receivable.
Example 2: The customer pays $5,000 for the invoice issued.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Bank | 5,000 | |
| 09-01-2024 | To Accounts Receivable | 5,000 |
Explanation:
- Bank will debited to reflect the inflow of funds.
- Accounts Receivable will credited to reduce the amount owed by the customer.
3. Purchase Invoice (Buyer’s Perspective)
When you receive a purchase invoice, you record the purchase of goods or services and the payable to the supplier.
Example 3: A company purchases office supplies worth $2,000 on credit and receives an invoice from the supplier.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Office Supplies/Purchase Expense | 2,000 | |
| 08-01-2024 | To Accounts Payable | 2,000 |
Explanation:
- Office Supplies/Purchase Expense will debited to reflect the cost incurred.
- Accounts Payable will credited to recognize the liability to the supplier.
4. Payment of Purchase Invoice
When you pay the supplier for the purchase invoice, you reduce the accounts payable and recognize the bank outflow.
Example 4: The company pays $2,000 to settle the invoice for office supplies.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Accounts Payable | 2,000 | |
| 09-01-2024 | To Bank | 2,000 |
Explanation:
- Accounts Payable will debited to reduce the liability.
- Bank will credited to reflect the cash payment made.
5. Sales Invoice with Sales Tax
When you issue a sales invoice that includes sales tax, you record both the revenue and the tax liability.
Example 5: A company sells goods worth $4,000 and charges 5% sales tax, issuing an invoice for $4,200.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Accounts Receivable | 4,200 | |
| 08-01-2024 | To Sales Revenue | 4,000 | |
| 08-01-2024 | To Sales Tax Payable | 200 |
Explanation:
- Accounts Receivable will debited to reflect the amount owed by the customer.
- Sales Revenue will credited to recognize the income.
- Sales Tax Payable will credited to record the tax liability.
These examples provide a basic understanding of how to record transactions involving invoices, whether you are issuing a sales invoice or receiving a purchase invoice.