What Is a Receipt?
Let me tell you directly: a receipt is a written acknowledgment that something of value has been transferred from one party to another. You get them from vendors and service providers as a consumer, they're used in business-to-business transactions, and they're provided with banking or financial market trades.
Key Takeaways
Receipts are an official record that represents proof of a financial transaction or purchase. They're issued in business-to-business dealings as well as stock market transactions. You need receipts for tax filing purposes. In accounting, receipts can refer to the total cash inflows over a specific period.
Tracking Transactions
Companies and other entities use receipts to track their cash flows, reimburse eligible payments, or claim certain benefits on their taxes. Each receipt should include the date of the transaction. In most cases, they include other details as well, such as the nature of the transaction, details of the vendor, method of payment, and any additional taxes or costs. Sometimes they may require a signature.
Many retailers insist that you show a receipt to exchange or return items, while others demand a receipt issued within a certain timeframe for product warranty purposes.
IRS Requirements
The Internal Revenue Service requires documentation of certain expenses. You should generally keep receipts and other records for at least three years after filing your tax returns, but the IRS advises keeping records for six or seven years for some types of expenses such as unreported income or bad debt deductions.
The IRS suggests that the following receipts be retained by individuals or businesses
- Gross receipts such as cash register tapes, deposit information, receipt books, invoices, and Forms 1099-MISC
- Receipts from purchases and raw materials
- Cash register tape receipts
- Credit card receipts and statements
- Invoices
- Petty cash slips for small cash payments
- Travel and transportation expenses
- Asset purchases for real estate, furniture, or personal property
Important Note on Digital Receipts
The IRS has accepted scanned and digital receipts as valid records for tax purposes since 1997. Revenue Procedure 97-22 states that digital receipts must be accurate, easily stored, preserved, retrieved, and reproduced. As a business owner, you must be able to supply a copy to the IRS.
Origin of Receipts
The practice of retaining receipts for tax purposes is thought to originate from ancient Egypt. Farmers and merchants sought ways to document transactions to avoid tax exploitation. They used papyrus instead of paper. In more modern times, London banks used the printing presses of the Industrial Revolution to print receipts with their brands.
What Are Some Types of Receipts?
Common examples of receipts include packing slips, cash register tape, invoices, credit card statements, petty cash slips, and invoices. The format for these forms may vary, but they all serve the same purpose of documenting the time and value of a business transaction.
Is an Invoice the Same As a Receipt?
An invoice is a payment request. A receipt is a document for payment that has already occurred. Businesses frequently issue invoices after providing a service to notify the customer of the expected payment.
What Are Gross Receipts?
Gross receipts are the total amount of cash or property that a business receives without accounting for any other expenses or deductions. Accountants use a company's gross receipts as one factor to calculate the firm's net income and profitability.
The Bottom Line
Receipts are one of the basic units of corporate accounting. Businesses and individuals use receipts as proof of payment, to claim deductions on their taxes, and to document expenditures on their income statements as well as to substantiate the existence of the assets on their balance sheets.
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