A receipt is a written acknowledgment that something of value has been transferred from one party to another. In addition to the receipts consumers typically receive from vendors and service providers, receipts are also issued in business-to-business dealings as well as stock market transactions.
📌 Key Takeaways
- Receipts are an official record that represents proof of a financial transaction or purchase.
- Receipts are issued in business-to-business dealings as well as stock market transactions.
- Receipts are necessary for tax purposes as proof of certain expenses.
- In accounting, receipts can also refer to the total cash inflows over a specific period of time.
- A typical receipt states the time and value of a transaction and may also include information on the type of service or product provided, the method of payment, and any additional taxes or fees.
For instance, the holder of a futures contract is generally given a delivery instrument, which acts as a receipt that can be exchanged for the underlying asset when the futures contract expires.
🔍 How a Receipt Works
Receipts document payments and business transactions. Companies and entities use them to track cash flows, reimburse eligible payments, or claim certain benefits on their taxes. In some countries, businesses must provide a receipt for every transaction.
Each receipt should include the transaction date. Typically, they provide details such as the nature of the transaction, vendor information, payment method, and any additional taxes or costs. Sometimes, they may require a signature.
While receipts were once handwritten, today, they are automatically generated at the point-of-sale.
🛒 Types of Receipts
Beyond showing ownership, receipts serve various purposes. For instance, many retailers require a customer to present a receipt to exchange or return items. Others demand a receipt—generally issued within a certain timeframe—for product warranty purposes. Receipts are also crucial for taxes, as the IRS requires documentation of certain expenses.
The IRS suggests that the following types of receipts, if generated, be retained by small businesses:
- Gross receipts like cash register tapes, deposit information (cash and credit sales), receipt books, invoices, and forms 1099-MISC.
- Receipts for purchases and raw materials (These must show the amount paid and confirm they were necessary business purchases; documents could include canceled checks or other documents that identify the payee, amount, and proof of payment/electronic fund transfers).
- Cash register tape receipts
- Credit card receipts and statements
- Invoices
- Petty cash slips for small cash payments
📜 Origin of Receipts
The practice of retaining receipts for tax purposes dates back to ancient Egypt, where farmers and merchants used them to avoid tax exploitation. They used papyrus instead of paper. In more modern times, London banks, utilizing printing presses from the industrial revolution, began printing receipts with their brands.
Fast Fact
Thermal printing is the most common form of physical receipt printing due to its low cost and ease of use. However, paper receipts are increasingly giving way to electronic receipts via emails or other digital records.
💻 IRS Requirements for Digital Receipts
Digital receipts are the new norm. Since 1997, the IRS has accepted scanned and digital receipts as valid records for tax purposes. Revenue Procedure 97-22 states that digital receipts must be accurate, easily stored, preserved, retrieved, and reproduced. The business owner must be able to supply a copy to the IRS if requested.
Digital records aren’t subject to physical wear and tear but can be lost if a hard drive fails. Thus, it is wise to store them in the cloud or another accessible location. Paper receipts can be stored digitally using desktop scanners and mobile phone apps, which can organize, create expense reports, and integrate data with bookkeeping software. For tax audit purposes, the IRS accepts various documentation as long as it details the amount, place, date, and type of expense.
🧾 What Are the Types of Receipts?
Common examples include packing slips, cash register tapes, invoices, credit card statements, petty cash slips, and invoices. Although their formats may vary, they all serve the purpose of documenting the time and value of a business transaction.
📑 Is an Invoice the Same As a Receipt?
An invoice is a request for payment, while a receipt is a document for payment that has already occurred. Businesses frequently use 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.
📩 What Are Read Receipts?
Read receipts are used in emails to determine if a message has been opened or read by the recipient. They function similarly to mail delivery receipts, providing proof that a message has been delivered.
⏳ How Long Should You Keep Receipts for Taxes?
For most expenses, keep receipts and other records for three years after filing taxes, as this is the period of limitations. However, for some expenses—such as unreported income or bad debt deductions—the IRS advises keeping records for six or seven years. If you do not file a return or file a fraudulent one, maintain your records indefinitely.
💡 The Bottom Line
Receipts are fundamental to corporate accounting. Businesses use receipts to prove payment, claim tax deductions, and document expenditures on their income statements. They also substantiate the existence of assets on balance sheets.
Related Terms: Invoices, Gross Receipts, Read Receipts, Tax Records.
References
- Internal Revenue Service. “How Long Should I Keep Records?”
