A Bill of Sale is used to protect both the seller and the purchaser in the case of any future issues. Since many purchases and sales between individuals are transacted using cash, it can be hard to prove that an item was received or paid for without proper documentation. For instance, in some states, such as California, a written Bill of Sale is recommended if you are buying or selling an item worth $500 or more. Without a written Bill of Sale, there might be no recourse for the buyer or seller in the event of a legal dispute.
A Bill of Sale also acts as a receipt for both parties. The seller can use it to prove that an item was sold to the purchaser "as is", and the buyer can use it to prove that the agreed upon payment (including any trades) was made in full to the seller. It also provides a sale date to both parties, which can show when the responsibility of the item was transferred. Both the purchaser and the seller can use a Bill of Sale as evidence of the price paid for tax purposes.
If the item happens to be insurable, you may need to provide documentation to prove that you are the legal owner, or that you are no longer in possession of the item. In other words, if completed correctly, a Bill of Sale can be used as proof of ownership.