(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% trade discount
(ii) net 3 months
(iii) E.& O.E.
(iv) carriage forward
(v) 21 % cash discount.
Explanation
(a) (i) Ordinary invoice is used as evidence of credit sale while proforma is used when the seller did not want to sell on credit
(ii) Ordinary invoice is always sent with the goods while proforma invoice can be sent without the goods
(iii) Ordinary invoice is not used to provide information but to confirm sales while proforma invoice can be used where the buyer needs information from the seller on terms of sales.
(b)(i) 5% Trade discount implies that 5% trade discount would be given to the customer when he buys in large quantity. This is a reduction in catalogue price to allow the seller’s mark up.
(ii) Net 3 months means there would be no discount to be given after three months The buyer would pay the invoiced amount if payment is made after 3 months. It allows credit purchase.
(iii) E.&O depicts errors and omission excepted. This simply means that the supplier has the right to make any necessary correction if it is discovered later that the invoice contains errors or omissions.
(iv) Carriage forward signifies that the buyer is responsible for the payment of carriage when he receives the goods dispatched by the seller. It means that the price quoted on an invoice does not include carriage charges.
(v) 2½% Cash discount means that a 2½% discount would be allowed on settlement of account if buyer pays cash within a specified period.