Receipt: Definition, Types, and IRS Rules

What Is a Receipt?

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.

For example, the holder of a futures contract is generally given a delivery instrument, which acts as a receipt in that it can be exchanged for the underlying asset when the futures contract expires.

How a Receipt Works

Receipts are used to document payments and business transactions. Companies and other entities use receipts to track their cash flows, reimburse eligible payments, or claim certain benefits on their taxes. In some countries, businesses are required to provide a receipt for each transaction.

Each receipt should include the date of the transaction. In most cases, they include other details such as the nature of the transaction, details of the vendor, method of payment, and any additional taxes or costs. In some cases, they may require a signature.

While receipts were once written out by hand, today they are automatically generated at the point-of-sale.

Types of Receipts

In addition to showing ownership, receipts are important for other reasons. For instance, many retailers insist that a customer must show a receipt to exchange or return items while others demand that a receipt—generally issued within a certain timeframe—be produced for product warranty purposes. Receipts can also be important for taxes because the IRS requires documentation of certain expenses. The Internal Revenue Service (IRS) suggests that the following types of receipts if generated, be retained by small businesses:

• Gross receipts such as cash register tapes, deposit information (cash and credit sales), receipt books, invoices, forms 1099-MISC
• Receipts from purchases and raw materials (These should show the amount paid and confirm that 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 is thought to originate from ancient Egypt. Farmers and merchants sought ways to document transactions to avoid tax exploitation. Papyrus was used instead of paper. In more modern times, London banks used the printing presses of the industrial revolution to print receipts with their own brands.

IRS Requirements for Digital Receipts

Digital receipts are becoming the 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.

Digital records are not subject to wear and tear as are physical receipts, but they can be lost if a hard drive fails. It's thus wise to store them on the cloud or somewhere where they can always be accessed.

Paper receipts can be stored digitally using desktop scanners and mobile phone apps. This type of technology can organize, create expense reports, and integrate data with bookkeeping software.

The Bottom Line

Receipts are one of the basic units of corporate accounting. Businesses use may 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.