Basic questions

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Shivani

Learner

1881 Points Joined December 2012

The following may sound very basic questions to the esteemed members but I have been greatly confused and trying to find answers for a long time on these:

1. As a seller, at what point, do we raise an invoice?

2. As a seller, is it the date of invoice that is always used for entering sale entries? Does date of despatch of goods or date of receipt of goods by buyer matters while entering sale entry?

3. As a buyer, is it the invoice date that is used to enter the purchase entries? Does date of receipt of goods by buyer matters for entering purchase entry?

Please provide the point-wise answer.

Thanks to all members for their help.

Regards

Replies (4)

Samrendra

Asst. Manager- Internal audit

226 Points Joined May 2008

Dear Shivani,

INVOICING Vs REVENUE RECOGNITION

Basic difference between Invoicing and Revenue Recognition are

INVOICE is raised on buyer to inform about the sales or services made to buyer with proper descriptttion and bifurcation.

WHERE AS

Sales are booked on the basis of REVENUE RECOGNITION concept which mainly dealt with transfer of property of goods and services.

Basic principle for revenue recognition is related to transfer of property of goods. which means Revenue can be recognized when right to use of goods is transferred. It can differ based on sales agreement conditions, delivery terms, payment arrangements therefore its always goods to identify the point where right to use the good is transferred is transferred to buyer. I feel that will be the right time for Invoicing. although there are certain exceptions such as hire purchase sale etc.

Shivani

Learner

1881 Points Joined December 2012

samrendra ji

nice reading wat u said.

it holds good when there is a formal contract of sale.

But in everyday life do the buyer and seller really enter into any formal contract of sale?

what I observe is that buyer approacher seller, seller despatch goods, raise invoice and that's all.

in such cases, since there is no contract, the question remains.

so in such cases, does the right to use gets transferred when seller raises invoice or despatches goods or when buyer receives goods?

Please clear the confusion.

thanks

Samrendra

Asst. Manager- Internal audit

226 Points Joined May 2008

Dear Shivani,

What You are talking is about basic and local sales where delivery and Invoice are at same time.

BUT recognizing revenue will not work when large amount of sale is made very frequently and to make it more complex sale to foreign countries got involved. There time gap between receipt of material and Invoices are some time ranged in months say 6 months plus multiple type of INCO delivery terms for eg. Ex- Factory or Free on Board or Door to Door.

Recognition time under different INCO term is different based on transfer of property of assets.