An invoice and a voucher are two important documents when it comes to recording transactions in a business. Sometimes these are used interchangeably, but they are not the same. We have discussed the differences between these two terms in this blog.
What is an invoice?
An invoice is a document that defines the goods and services that a business provides to a customer on credit and states the customer’s obligation to pay for those goods and services. It is usually prepared and issued by a seller to a buyer when goods are sold on credit. It specifies the terms of the transaction as well as information on the possible payment methods like how much your customer owes you, when is the payment due, and what services you provided.
In ordinary trade parlance, invoices for the supply of goods are raised as soon as the goods are delivered, with a typical credit period spanning up to 30 days from the invoice date.
On the face of it, an invoice must indicate that it is an invoice. It usually has a unique identifier known as an invoice number, which is useful for both internal and external references. In most cases, invoices include the contact information of the seller or service provider that may be required in case of a billing error.
From an accounting point of view, an invoice is a source document in written form which acts as documentary evidence of business transactions. Whenever a transaction takes place, its invoice is the first document evidencing it which acts as a source for recording the transaction in the books.
Examples of invoice
Invoicing is a vital element of any business. Regardless of how large or small a company is, one must issue an invoice for the supplies that are made to the customers. Due to several factors, a small business may prepare many forms of invoices. Some of the factors that determine the sort of invoice that one needs to issue are the type of industry that the business is into, its customer type, regional dependency, compliance requirements, and so on.
For example, in order to meet compliance requirements, you must issue a “Tax invoice” to a customer who is located in the same country as your business. If you are supplying goods to a customer in another country, you must issue a commercial invoice and may additionally be required to issue an ‘Export Invoice.’ Some of the other common types of invoices may be paper receipts, debit notes, sales invoices, electronic records, or a bill of sale.
What is a voucher?
Just like an invoice, a voucher is also a document that acts as evidence for a business transaction. But, unlike invoices, vouchers are prepared and used for a company’s internal use. Whenever a transaction takes place, then, first of all, extracts of them are recorded on vouchers based on information contained in source documents. A source document could be anything including an invoice, bill, receipt, cash memo, pay-in-slip, cheque, debit note, credit note, etc. Thus, vouchers are the first place where transactions get recorded in the account books and they then form the basis for passing accounting entries. They also help authorize the transactions to process payments.
In other words, a voucher is a written instrument used to certify or witness (vouch) for certain facts, such as a transaction. It is typically a document that demonstrates goods that have been purchased or services that have been provided, or it authorizes payments and specifies the ledger accounts in which these transactions are to be recorded. If you pay an electricity bill in cash, for example, the two ledgers involved will be power expenses and cash. In this situation, a payment voucher crediting the cash account and debiting the P&L account will be passed.
Types of vouchers
Vouchers are classified into two types: cash and non-cash vouchers.
Vouchers prepared for cash transactions such as cash receipts and cash payments are called cash vouchers. These cash vouchers are further sub-divided into debit vouchers and credit vouchers.
Debit vouchers or payment vouchers
These are created for cash payments and specify that all accounts in respect of which cash is paid will be debited. As a result, debit vouchers are created in the following scenarios: Cash purchases of goods, purchases of fixed assets in cash and payment of expenses, and so forth.
Credit vouchers or receipt vouchers
These are created for transactions involving cash receipts and specify that all accounts in respect of which cash is received are to be credited. These vouchers are created in the following scenarios: Cash sales of goods, sale of fixed assets in cash and receipt of income, etc.
Non-cash vouchers, also referred to as transfer vouchers are prepared for credit transactions. These vouchers are created in the following scenarios: credit purchases of goods, sales of goods/fixed assets on credit, provision for depreciation, etc. The cash and bank balance remain unaffected in these transactions. For instance, for a credit sale of goods, the voucher would indicate that debit the account of the debtor to whom goods are sold, while the sales account is to be credited.
There is yet another category of vouchers called the supporting vouchers. These are in fact the source documents or supporting evidence that indicate that transactions have taken place. For example, you can attach an expense bill together with the original voucher to substantiate the primary voucher. Petrol bills attached to conveyance vouchers are a nice example of supporting vouchers. It won’t be wrong to say that these are invoices or bills based on which vouchers are made and hence, act as supporting proof.
Specimen of Voucher and Invoice
A comparison table showing differences between voucher and invoice
The table given below highlights the main differences between a voucher and an invoice.
|Meaning||It is a document that specifies the terms of the transaction when a business sells goods to its customers on credit.||It is a written instrument used to certify a transaction and approve it for processing the payment.|
|Details||It gives complete details about the transaction, its date of occurrence, the amount, discount, the tax charged, the contact information of the seller, and the parties involved in it.||It contains details of the quantities and amounts of goods purchased or sold, the ledger account to which it has to be recorded, and the approval signature or stamp.|
|Track of what?||Invoices are generally used to maintain track of all sales transactions between a business and its clients. They are issued by every business and professional to keep track of sales and services offered.||Not only credit sales but all transactions whether cash or non-cash are recorded through vouchers to indicate the account to be debited and credited.|
|Examples||Some examples of invoices may be Tax invoices, Commercial invoices, Export Invoices, paper receipts, debit notes, sales invoices, electronic records, etc.||Vouchers may be of four types: debit vouchers, credit vouchers, non-cash vouchers, and supporting vouchers.|
|Prepared by whom||Invoices are normally prepared by the billing department in a company and sent to the clients/customers after effecting a sale.||Vouchers are prepared by an accountant of the company and signed by an authorized signatory. It kind of ensures that every transaction is properly authorized by appropriate personnel before it is posted to relevant ledger accounts.|
|Use||Invoices are used for both internal and external purposes. They help keep track of all sales transactions that a business does with its clients. And they are also helpful to correspond with clients and request timely payments.||A voucher is used as part of a company’s internal control procedure. It gathers all documentation needed for a transaction and helps to authorize payments to be processed by the Accounts Payable department.|
|Relationship||Invoices are issued by a vendor on the sale of goods.||Vouchers help to process the payment of vendor invoices. They are created once the invoice from the supplier is received.|
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