What Is a Purchase Invoice in Accounting?

A purchase invoice is a fundamental financial document in accounting. It represents a formal request for payment issued by a seller to a buyer for goods or services delivered on credit. From the buyer’s perspective, this document serves as an official record of the transaction and signifies a financial obligation to the supplier. It is distinct from a purchase order, which the buyer typically issues to initiate a transaction, as the invoice is sent after the goods or services have been provided.

Core Components of a Purchase Invoice

A standard purchase invoice contains several key pieces of information for a comprehensive record. The invoice includes details about the vendor, including their name, address, and contact information, alongside the buyer’s corresponding details. A unique invoice number is assigned for tracking purposes, accompanied by the invoice date, its issue date. The payment due date, the payment deadline, is also prominently displayed.

If applicable, a purchase order (PO) number from the buyer’s original order is included. It details the description of the goods or services purchased, specifying the quantity and unit price for each item. Line items are summed to a subtotal, with applicable taxes, discounts, or shipping charges added or subtracted. The total amount due is presented, along with the payment terms, such as “Net 30” (payment due within 30 days) or early payment discounts.

Purpose and Importance

Purchase invoices serve multiple purposes beyond simply requesting payment. They act as official records of expenses and liabilities, documenting what a business has acquired and owes. This documentation is important for accounts payable management, allowing a business to accurately track its financial obligations to suppliers.

These invoices are also important for financial tracking and budgeting, helping businesses monitor spending and manage cash flow. For tax compliance, purchase invoices are essential, providing documentation for deductible business expenses and for calculating tax obligations, such as sales tax or income tax. During internal or external audits, these invoices provide evidence of transactions, ensuring financial statement accuracy. In the event of any discrepancies or disputes with suppliers, the detailed information on a purchase invoice provides a record for resolution.

How Purchase Invoices are Used in Accounting

Once a purchase invoice is received, it undergoes steps within an accounting system for accuracy and recording. The initial step involves receipt and verification, often through a process known as “three-way matching.” It compares the details on the purchase invoice against the original purchase order and the receiving report (which confirms goods or services were received). This matching process helps to ensure that the invoice is legitimate, accurate, and corresponds to what was ordered and received, preventing errors or fraudulent payments.

After verification, the invoice data is entered into the accounting system, into the accounts payable ledger. This entry creates a financial record of the liability, usually by crediting the Accounts Payable account and debiting the relevant expense or asset account. Before payment is made, the invoice generally undergoes an internal approval process to confirm that the expenditure is authorized and legitimate.

Invoices are then scheduled for payment based on their due dates and the agreed-upon payment terms. The actual payment, whether via check or electronic transfer, is processed, and the accounting records are updated to reflect the reduction in the Accounts Payable balance. Finally, businesses retain purchase invoices for future reference, audits, and tax purposes. While retention periods can vary, businesses commonly keep these records for at least three to seven years, or longer for certain tax claims or contracts, to comply with regulations and support financial reporting.