Friday 24 July 2015

What Is the Difference Between a Sales Order & an Invoice?

Businesses use a great deal of documentation in order to keep companies running smoothly. Doing so generally results in greater revenue. Two of the most basic documents companies uses are sales orders and invoices. Although there are some similarities between the documents (e.g., both may list the company and purchaser addresses), there also are major differences.
Action
  • Sales orders indicate that the company that is providing goods or services needs to take action (i.e., to complete the order). Usually this involves finding the product, packaging it, etc., or setting up a meeting so that services can be rendered. Invoices indicate that the purchaser of goods or services needs to take action. This typically means that the purchaser needs to compensate the company monetarily for the products or services, which can be done by sending the company a check or money order, transferring money from a bank account, or going to the company website and using an online form to pay with a credit card.
Trigger
  • Sales orders are triggered by the purchase order of the consumer. This is because a company cannot list the items or services that an individual wants until the individual lets the company know what is desired. Invoices are triggered by the completion of a sale or service. This is because the company cannot charge an individual for products that were never delivered or for a service that never was given.
Listing
  • Sales orders list the products or services that the consumer wants. This can be a single item/service or it can be an extensive list of multiple products/services. These often are listed with an item/service number and a short description. Invoices list the amount of money owed for those products or services. The invoice may reiterate the product and service list to show clearly how the total owed was obtained, but the main objective is to indicate that money is due.
Date
  • Sales orders indicate the date the consumer's request for a product or services was processed. This means that the date listed indicates a time in the past. Invoices indicate the date that money is due for those products or services. This means that the date listed indicates a time in the future.
Use
  • Sales orders are used to approve, track, and process the completion of an order. For example, once the sales order is received by the purchaser, if there are any errors such as missing items/services, incorrect items/services, etc., then the purchaser can contact the company to revise the order and correct it. Invoices are used to communicate that the order is complete. By this time the goods/services have been delivered or rendered, so the individual cannot make changes.

    Eugeniu Braila, CPA 

What books and records must be kept for a Canadian individual or a business ?

If you are a person carrying on a business (individual, partnership, corporation, registered charity, trust etc.) and are required to pay or collect taxes according to the Income Tax Act, Employment Insurance Act, Canada Pension Plan, or Excise Tax Act (which includes GST/HST), you have to keep books and records. The records that must be kept include books of accounts and records which provide the ability to calculate taxes payable.  Books and records must be supported by "source documents" which substantiate the amounts in the books of account.  Canada Revenue Agency (CRA) indicates that supporting documents for the income tax return of an individual should be kept for six years, in case they select your return for review.  They may request more documentation than official receipts as proof of deductions or credits claimed, including cancelled cheques or bank statements.  For instance, for a tax return filed in April 2009 regarding the 2008 income tax return of an individual, the source documents must be kept until at least January 2015.  However, it would be better to retain the documents until six years after the date on the notice of assessment or notice of reassessment.
Source documents include (but are not limited to) invoices for purchases and sales, deposit slips, cheques, and contracts.  These books and records are used to prepare financial statements of the business, which must be prepared according to GAAP (generally accepted accounting principles).   Recent changes in accounting standards means that now, financial statements must be prepared according to International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE).

For purposes of income tax, most books of accounts, records, and source documents have to be retained for a minimum of six years after the end of the last tax year to which they relate.  In the case of records regarding capital purchases, the last tax year to which they relate would be much later than the acquisition date.  It would be the tax year in which a disposal of the capital property occurred, because the purchase records would be required to calculate the gain or loss on disposal.  Thus, records regarding capital property should normally be kept until six years after the end of the tax year in which the capital property was sold. 

For more info see: http://taxtips.ca/smallbusiness/booksandrecords.htm 

Eugeniu Braila, CPA