We learnt what is an invoice but there are so many new words surrounding invoicing and the world of accounting, and they can be difficult to keep track of! Don’t worry, we’ve got you covered. Take a look at the list of accounting terms, and their definitions as they relate to invoicing, below.
Account – An account is a record in the general ledger that is used to collect and store similar information. When invoicing a client, you keep record of it as part of their account.
Accounts Payable – This is a current liability on the account, and will show the amount a company or an individual owes for items or services purchased on credit and for which there was not a promissory note. Accounts payable is sometimes also referred to as trade payables.
Adjusting Entries – These are journal entries usually dated the last day of the accounting period to bring the balance sheet and income statement up to date on an accrual basis. Any invoices sent and/or paid would be accounted for when adjusting entries.
Bookkeeping – The recording of a company’s transactions into the accounts contained in the general ledger. All parties will benefit from keeping copies of invoices for bookkeeping purposes.
Cash Flow – Actual changes in cash as opposed to changes in account revenues and expenses. It has been proven that companies who adopt electronic invoicing over paper systems see an increase in cash flow.
Expenses – Costs that are matched with revenues on the income statement. Clients who pay invoices, or bills, will possibly to be able to label those costs as expenses.
Fiscal Year – An accounting year that ends at any other date than December 31. For example, many school systems have a fiscal year that ends in June. Companies sending invoices may try to have all of them paid by the end of their fiscal year.
Inventory – A current asset whose ending balance should report the cost of a merchandiser’s products waiting to be sold. The inventory of a manufacturer should include the cost of its raw materials, work in progress and finished goods. Many manufacturers use their invoices as documentation to help keep track of their inventory.
Memo Entry – An entry without debit or credit amounts. Memo entries may be included on invoices when applicable.
Net – The result of two or more amounts being combined. An invoice should reflect the net amount owed, including all current credits and debits.
On Account – An item marked for credit, not cash. Depending on the company, a buyer may have items on account that will be reflected on an interim invoice and/or a final invoice.
Payable – The amount owed by a company as of the balance sheet date, even if the company did not yet receive an invoice from the supplier.
Receipts – Cash received. Receipts are different from revenues.
Sales – A revenue account that reports the sale of merchandise. These sales are reported during the accounting period in which the merchandise went from the seller to the buyer.
Trade Payables – Payables arising from the purchase of merchandise inventory and outside services. These would be visible on an invoice.
Uncollected Funds – The amounts in a company’s bank account that are not yet accessible because the checks deposited into the account have not yet cleared the bank on which they were drawn.
Vendor Invoice – The name used by a buyer of goods or services for the sales invoice or bill received from the supplier of the goods or services.
Work-in-progress – The long term asset account that is used to report the amounts spent on the construction of buildings and equipment until the asset is completed and put into service. Work in progress can be included on an interim invoice for future reference.
The business proposal is one of the first steps of a business relationship.
Quote and Estimates
We covered a definition of quotes and estimates separately since they are usually part of a business proposal and are an important concept related to invoicing.
A successful business proposal usually leads to a contract. Read more on business contracts and their importance in business.