Theory question 101
Purchase and Sale of GoodsCommerce 2 (essay)
(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) 2½% cash discount
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(a) An ordinary invoice is a bill sent with or after the goods in a credit sale, showing what the buyer owes; it is evidence of the sale and a demand for payment. A proforma invoice is sent before the goods, as a quotation or to ask for payment in advance (cash with order) or with goods on consignment; it is not a demand for payment.
(b)(i) 5% trade discount – 5% is deducted from the list (catalogue) price for a trader, usually for buying in bulk, to allow him a profit margin.
(ii) Net 3 months – the full invoice amount (no discount) must be paid within three months.
(iii) E & O.E – errors and omissions excepted: the seller may correct any mistake found later on the invoice.
(iv) Carriage forward – the buyer pays the cost of transporting the goods.
(v) 2½% cash discount – the buyer may deduct 2½% if he pays within the stated period.
In (a) focus on when each invoice is sent and its purpose.