Journal Entry for Issuing Invoice

Businesses issue invoices to customers as a means of tracking the amounts owed for goods and services that have been delivered. An invoice is typically issued after goods or services have been provided, and typically includes details about the products bought, the prices for each item, and the total amount owed by the customer.

Invoices are important tools in business accounting as they provide records that can be used to determine a company’s income. Issuing invoices can also help businesses to get paid more quickly.

The issuing invoice does not reflect the recording of the revenue, it is just the document that company sends to the customer to ask for payment.

The revenue is recorded based on accrued basic, it depends on the delivery of goods or services to the customers. The revenue occurs when the goods are delivered or services are rendered, and it is the time that company record revenue on the income statement. There can be an agreement between the company and its customer for the exchange of goods and services.

Revenue is also recorded based on the completion of the contract basis. The complete performance of contract happens when all activities fulfilled under the contract are completed in a way with expected results or outcomes. Revenue recognition here takes place when business renders all products or services as per the terms agreed upon in the contract and will be recognized as income in the period when complete performance has happened.

However, most companies issue invoices to customers after delivering goods or services. They issue invoices to demand payment from customers. So company uses references on the invoice to link with the revenue recording. Accountant record revenue based on the invoice amount which is the same as the delivered goods. The reference on the invoice is also linked with the accounts receivable recording.

Journal Entry for Issuing Invoice

If the company only issues invoices without delivering goods or services, it can not make a recording of revenue.

The company requires to record revenue when issuing invoices unless the goods or services are delivered.

The journal entry is debiting accounts receivable and crediting sale revenue.

The accounts receivable record on the balance sheet happens when the customer purchase on credit. The revenue is recorded on the income statement.

When the customers make payments to settle the accounts receivable, the company needs to recognize cash and reverse accounts receivable.

Example

Company ABC has sold raw materials to a customer in another city. The company has delivered raw material amount $ 55,000 to the customers, and both parties have agreed on the quantity and quality of the material. After that ABC issued an invoice for the same amount to demand payment from the customer. Please prepare journal entry for issuing an invoice.

As the company has already delivered goods to the customer, it has to record revenue when issuing invoices.

The journal entry is debiting accounts receivable $ 55,000 and crediting revenue $ 55,000.

The recording will increase the accounts the receivable amount of $ 55,000 and the revenue will be recorded on the income statement.