What is a Receipt? [Definition, Examples, IRS Rules]
June 27, 2023
If you’re wondering what is a receipt, and what makes it a must-have in every business transaction, you’ve come to the right place. Whether your business offers goods to customers or provides services to fellow business owners, receipts play a key role in tracking your sales and expenses.
Receipts are also useful for your customers. They can use it to show proof of payment and verify the contents of the items they have purchased upon delivery.
This article will discuss everything you need to know about receipts, from the different types of receipts used by businesses to the rules imposed by the IRS regarding the use of receipts in filing your taxes.
- A receipt is a printed or electronic document that sellers issue upon receiving payment from customers in exchange for purchasing their products.
- Standard receipts contain the name and contact information of the business, transaction date, the denomination of the items, cost per unit, applicable taxes and added costs, and the total amount paid by the customer.
- Some of the most common types of receipts include cash register receipts, handwritten receipts, credit card receipts, receipts from raw material purchases, petty cash, and packing slips.
- An invoice is not the same as a receipt. Invoices are created by sellers and sent to customers to request payment for the goods they have purchased, while a receipt is issued once the customer successfully fulfills their payment obligations.
What is a Receipt?
A receipt is a printed or electronic document used to acknowledge a successful transaction. The transaction may be in the form of trading goods or fulfilling services in exchange for a specified payment.
Sellers, vendors, and business owners are the ones who issue receipts, which are then sent to the buyer or the party who ordered the goods and services.
Receipts are used in both business-to-customer and business-to-business settings. It contains the date when the transaction was made, the type of transaction, and a breakdown of the goods or services.
Also included in a receipt are the seller’s name and contact information, as well as any taxes and added costs applicable to the sale.
Presently, receipts are generated electronically or printed on paper. Electronic receipts enable faster transactions and are typically sent directly to the customer’s email. Printed receipts are more traditional and common when the goods are acquired personally by the buyer, such as when they purchase from an establishment, store, or restaurant.
Why Are Receipts Important?
To answer the question of what a receipt is used for, let’s check out the following examples:
- Issuing receipts for every transaction is vital because it documents all items sold to each buyer. It notifies customers that their partial or full payment has been received and provides proof of delivery.
- Receipts simplify the process needed to edit your inventory and update your accounting books. Often, receipts are instrumental in carrying out the warranty and return policy that come with a product.
- Keeping a copy of the receipts issued to your customers is paramount if you want insurance for your services and a reliable reference for when you file taxes later on.
How do Receipts Work?
When a buyer sends a partial or full payment in exchange for purchasing products and services, the seller issues a receipt to acknowledge the payment. In contrast to an invoice, a receipt is generated after the transaction is completed.
An invoice is sent to the customers to notify them how much they owe for the goods delivered and to acknowledge that the items purchased have been received. On the other hand, a receipt is sent to the customer to notify them that the seller has received their payment and therefore confirms the fulfillment of the sale.
What Goes on a Receipt?
A receipt contains the following information:
- Business or seller name. The name and logo of the business or seller who sold the goods and services.
- Business or seller address and contact information. It includes the address where the business is located as well as the contact number and email address of the seller.
- Transaction date. The transaction date is the date when the exchange of goods and payment took place between the seller and buyer.
- Payment method. It refers to the mode of payment used by the buyer tosend the amount due for their purchase.
- Detailed breakdown of goods and the cost per unit/item. A complete list of all the items ordered, including the corresponding cost per unit.
- Sales tax and added costs (if applicable). It specifies any taxes, such as VAT or additional costs, such as shipping costs, included in the item’s total amount.
- Total amount. The total cost of the goods purchased by the buyer.
Should You Issue Receipts?
The answer is yes. As an entrepreneur or business owner, issuing receipts for every transaction is a must. Receipts protect your business against customers attempting to make false claims against your products in hopes of getting a refund or receiving items for free, even when it is not necessary.
Since the receipt is issued to the buyer, they must present an official receipt from your shop if they want to return an item and have their money refunded. Otherwise, you have the right to refuse a refund or accept a return request if the customer is unable to present a valid receipt.
Alternatively, if the customer is able to present the receipt that came with their purchase, you can check the transaction date on the receipt, which you can then use to verify whether the refund policy for the item is still in effect.
Issuing receipts also saves your business from legal disputes and aids in regulating your budget because it ensures your financial records and inventory are in sync. It tracks any unreimbursed expenses related to your business, including medical expenses, costs for purchasing and repairing equipment and supplies, self-employment, and child care expenses.
You can also file for tax write-offs based on the aforementioned business costs.
Types of Receipts
The following are the different types of receipts commonly used in business transactions:
#1. Cash Register Receipts
Cash register receipts are typically given to a customer upon purchasing goods in the supermarket or grocery store. It is issued from the merchant to the buyer and generated through a store’s cash register.
Cash register receipts may be in electronic form, printed via a computer, or handwritten.
#2. Handwritten Receipts
Handwritten receipts are provided by contractors, service providers such as electricians and plumbers, and small businesses. Despite being outdated and less preferred compared to their electronic counterparts, handwritten receipts are still considered legal and valid.
The information contained in handwritten receipts is similar to the details included in a printed receipt. It itemizes the items or services purchased by the customer, the corresponding price per unit, and the total amount.
#3. Credit Card Receipts
This type of receipt is issued by banks to credit card users. The receipt details all withdrawals and payments made by the user using their credit card within a given billing period.
Aside from all of the customer’s transactions, credit card receipts also contain additional finance charges by the bank, the amount to be paid by the customer, and payment due dates for each period, as well as information on the different options customers have to settle their bill.
Credit card receipts are issued by banks at the end of each billing period.
#4. Receipts From Raw Material Purchases
Printed or handwritten receipts are more common when purchasing raw materials to produce certain goods. The receipt verifies that the purchase of raw materials is essential to the business. It shows the amount paid, proof of payment (particularly for electronically transferred payments), and any checks canceled during the transaction.
#5. Petty Cash Slips
Small payments or purchases use petty cash slips to record the transaction. Examples of when petty cash is used include travel expenses, meal payments, and buying office supplies. A custodian in charge of monitoring the petty cash box fills out the receipt needed to release the required amount.
The petty cash slip shows the amount needed from the petty cash box and the date when the money is released.
#6. Packing Slips
It is a document that itemizes all of the items included in a package. It also contains the SKU (Stock Keeping Unit) number or a unique alphanumeric combination assigned to each product for easier tracking. The dimension, weight, and total number of units within the package are also specified in a packing slip.
Packing slips are integral to shipping goods because they provide the recipient with a reference to check that all the items they ordered are delivered fully and properly.
#7. Duplicate or Carbon Copies
Duplicate or carbon copies are usually generated with handwritten receipts. A carbon sheet is placed in between two blank receipts, and the merchant has to write and press down firmly on the receipt placed atop the carbon sheet to ensure the information is copied legibly on the receipt placed under the carbon sheet.
In this manner, both the merchant and the buyer keep their own copies of the receipt. You can also duplicate receipts digitally, especially if your receipts are generated in electronic form.
IRS and Receipts
The IRS acknowledges all the different types of receipts enumerated above and strongly advises all businesses and sellers to have complete documentation of all their transactions for tax purposes, and that includes receipts.
For digital receipts, the IRS imposes Revenue Procedure 97-22, which states that electronic records must contain accurate information and may be reproduced, saved, and retrieved seamlessly. A copy of the digital receipt must also be secured for the IRS.
Generally, the IRS is not too particular about the type of documents used by sellers as supporting evidence in filing taxes. Vendors may present a receipt, bill, travel itinerary, list of expenses, or canceled checks, and the IRS will accept them for tax auditing as long as the records specify the date, location, expense type, and amount paid to complete the transaction.
At best, all records used to file taxes should be kept for a maximum of three years.
When it comes to defining what a receipt is in business, the simplest answer is that it is a document that signifies transparency between business owners and their customers.
The failure to secure receipts for every sale or transaction makes your business more predisposed to scams and unnecessary legal disputes. Receipts guide you in reviewing your sales and profit and backtracking your inventory, which, in turn, allows you to plan your business’s expenses accordingly.
Moreover, the presence of a valid receipt indicates that a purchase was carried out according to existing federal regulations and customer preferences.
What is a Receipt FAQ
#1. What is a receipt in accounting?
In accounting, a receipt refers to an official document that serves as evidence of a purchase between two parties. Receipts are used in both business-to-business and business-to-customer transactions.
#2. Is invoice the same as receipt?
An invoice is not the same as a receipt. Invoices are issued by sellers to buyers upon providing the requested goods and services. It notifies the buyer of the amount that they must pay in exchange for acquiring the goods. A receipt is generated after payment for the goods and services is acquired to denote that the payment has been fulfilled and duly received by the seller.
#3. What are gross receipts?
Gross receipts document the total amount of money received by a business. It discounts other costs and deductions from a business’s profit. Gross receipts are used to determine a company’s net earnings.
#4. What is a receipt for payment?
Also called a payment receipt, this type of record is created by a business upon receiving payment from customers in exchange for the services and products they have provided.