BIR explains the difference between Sales Invoice and Official Receipt as proof of payment

Have you ever experienced being required by your Auditor to provide an Official Receipt (OR) for the goods which you purchased because according to him/her a Sales Invoice (SI) is not an Official Receipt?

Consequently, fearing that this might signal the issuance of an Audit Observation Memorandum (AOM) you stressed yourself out and called the store where you bought the item. Unfortunately, you were told by the Store Supervisor that they cannot issue an Official Receipt because they are only required by the Bureau of Internal Revenue (BIR) to issue Sales Invoice. As a result, you were very worried because the Auditor threatened you that he will issue an AOM if you will not be able to provide the Official Receipt that he needs.

[READ: Top 10 Reasons Why Accountants and Budget Officers Receive Audit Observation Memorandum (AOM) from the Commission on Audit (COA)]

It’s sad to say but this situation shows that both of you apparently do not know the difference between an Official Receipt and a Sales Invoice.

But don’t you worry because you are not alone.

In fact in 2014, the BIR deemed necessary to issue a clarificatory Circular on this matter because seemingly many government Accountants and Auditors alike are confused as to when to require an Official Receipt and when to require a Sales Invoice? Some Auditors insist that only Official Receipts are acceptable proof of payment. They insist that a Sales Invoice must still be supported by an Official Receipt. On the other hand, some Government Accountants fall into needless stresses because they cannot provide the required Official Receipt for the Sales Invoice issued to them by the seller of goods. Nonetheless, they are not having the same difficulty for the services they purchased because they are issued Official Receipts by the service provider as proof of payment.

In Revenue Memorandum Circular No. 2-2014 the BIR states this:

“The Bureau has been receiving numerous queries regarding the requirement of Government Auditors on the issuance of Official Receipt as the acceptable evidence of receipt of payment for disbursements where the payee/recipient is a dealer, supplier or business establishment required by the BIR to issue the same in the sale/lease of goods or properties, and/or sale of services. That Sales Invoices are demanded as evidence of delivery, agreement to sell or transfer of goods and services, and Official Receipt as evidence of payment. In fine, both Sales Invoices and Official Receipt are required on one transaction by some government agencies.”

Foregoing considered, it is clear that there is confusion among Government Accountants and State Auditors as to when to require an Official Receipt and when to require a Sales Invoice as proof of purchase. Unfortunately, some Auditors still require Official Receipt even if the Accountant already provided a Sales Invoice as proof of purchase. It is essential to point out that the term “Official Receipt” has been understood by some Government Accountants and State Auditors as the sole evidence of payment, regardless of what is being purchased.

Thus, the BIR issued the aforementioned clarificatory Circular on this matter to stop the confusion.

In the Circular, the BIR clearly clarifies the difference between an Official Receipt and a Sales Invoice and identify when to require each of them, as shown below:

It is noted that a Sales Invoice and an Official Receipt are both Principal evidence/proof of purchase. The difference lies on what is being purchased — Sales Invoice is for the purchase of goods and Official Receipt is for the puchase of services/lease of properties.

Now, is a Sales Invoice a Proof of Payment?

If the seller is engaged in the sale of goods or properties, it will need to issue a Sales Invoice when the goods are sold to the buyer, whether cash or on credit. If the sale was on credit, the seller will then issue a collection receipt upon receipt of cash from the buyer. If the sale was paid on cash, a Cash Invoice is enough. Under BIR Revenue Regulation No. 18-2012, a Cash Sales Invoice or Cash Invoice fall under the definition of Sales Invoice.

What about an Official Receipt? Is it a Proof of Payment?

Official receipt is issued by the seller to the buyer as a written evidence on sale of services or leasing of properties, as well as acknowledgement on collection of cash payment on services rendered. It is no longer necessary to issue a Sales Invoice because there are no items or goods involved. Instead, the seller/service provider can issue a Service Invoice or Billing Statement if the service was on credit. Upon receipt of cash, the service provider will then issue an Official Receipt to the buyer.

The BIR clarifies that Commercial Receipts/Invoices such as delivery receipts, order slips, purchase orders, provisional receipts, acknowledgement receipts, collection receipts, credit/debit memo, job orders, and other similar documents that form part of the accounting records of the taxpayer (i.e., seller) and/or issued to their customers evidencing delivery, agreement to sell or transfer of goods and services shall be supplementary evidence only.

Going back to the aforementioned scenario, foregoing considered, the Sales Invoice shall serve in lieu of Official Receipt in the sale of goods or properties for evidentiary purposes in terms of audit. On the other hand, an Official shall serve as proof of payment for the purchase of services.