Generally, this agreement entered into by the buyer stipulates that payment must be made within 30 days. In recent years, the tremendous increase in the use of credit cards, issued by financial institutions to their customers, has done much to simplify these accounting transactions.
The letters, although they are not used much anymore, are still important in the wholesale trade and in foreign transactions. Invoices have certain characteristics that make them negotiable documents. A financial document is negotiable if it can be transferred from one person to another. This is accomplished when the holder endorses the document and delivers it to the other party. Bearer documents are transferred only by delivery. To be negotiable, a financial document or invoice must have the characteristic that, in certain circumstances, the rights of the owner are inalienable, even if the rights of its predecessor were defective or invalid.
An invoice is a negotiable document in the accounting process. It is a written and unconditional instruction issued by one person to another whereby the latter receives instructions to pay upon request, on a specified or specifiable future date, a certain sum of money, either to the order of the specified person, or to the carrier. .
There are at least three parties to accounting invoice records, namely the drawer, the drawee, and the payee or bearer. The three parties must be different people; the same person can be part of the bill in more than one capacity. For example, the drawer may specify that the money must be paid to himself, so he is both the drawer and the beneficiary simultaneously.
The definition of a bill indicated that it could be extended to ‘bearer’, in which case any person in possession of the bill on the due date could claim payment from the drawee. This means that the right to receive payment for an invoice can be transferred to another person simply by handing it over to them. If the word ‘bearer’ is crossed out and replaced by ‘order’ (related to the possible negotiation of the document), it means that the drawee must pay the amount in question to the beneficiary, or to any person specified by him in writing. , or to any owner specified below. Such a written specification must appear on the invoice itself (usually on the back) and is known as an endorsement. Therefore, within the accounting process, the invoice is considered a negotiable document.
When a business conducts a large number of invoice transactions, it is not practical to make a separate journal entry for each accounting transaction. In such cases, a separate journal with the necessary columns is used as the subsidiary journal. Accepted invoices are valuable documents and, as in the case of cash, must be properly controlled in an accounting system. They must be stored safely immediately upon receipt. The balance of the accounting control account for invoices receivable should be periodically compared with the items in the invoice book and with the available invoices.
Invoices receivable are current assets and are shown on the balance sheets as such, along with other current assets. They are shown at their nominal value, less any possible provision for doubtful recoveries. Invoices receivable are often combined with debtors as a single amount, displayed as debtors and invoices. As in the case of debtors, it is advisable to anticipate the invoices that may be irrecoverable.