(a) State the difference between an ordinary invoice and a proforma invoice. (b) Explain the following terms used in connection with an invoice: (i) 5% trad...

(a) Difference between an ordinary invoice and a proforma invoice

An ordinary invoice is a document sent by the seller to the buyer after goods have been sold on credit. It is a demand for payment, showing the goods supplied, quantities, prices and the total amount the buyer owes. A proforma invoice is not a demand for payment; it is a document sent to a prospective buyer to show what the goods would cost if an order were placed. It is used to quote prices, to accompany goods sent on approval or on consignment, or to request advance payment before goods are supplied.

(b) Terms used in connection with an invoice

1. 5% trade discount: This is a reduction of 5% off the catalogue (list) price allowed by a manufacturer or wholesaler to a trader who buys for resale. It is deducted before the net amount is calculated.
2. Net 3 months: This means the buyer is expected to pay the full (net) amount of the invoice within three months, and no cash discount will be allowed for payment within that period.
3. E. & O.E.: This stands for Errors and Omissions Excepted. It means the seller reserves the right to correct any mistake or figure wrongly stated or left out on the invoice.
4. Carriage forward: This means the cost of transporting the goods to the buyer is to be paid by the buyer (the receiver), not by the seller.
5. 2½% cash discount: This is a reduction of 2½% allowed to the buyer as an inducement to pay the invoice promptly, that is, within the stated period of credit.