What is a Proforma invoice?
A Proforma invoice is issued by any entity or person prior
to or while providing any service or product to another party (Customer). It is
a nominal invoice which has no any power or liability to any party. The Proforma
invoice is like the normal legal invoice and it consist name, address, details
of service or goods, amount and approximate tax amount. It may include
signature and stamp of the organization too. When issuing a Proforma invoice,
most of the time, the parties prepare this by manually. Because most of the
systems does not allow to issue Proforma invoices. Proforma invoices do not
record any journal entry in systems. Customers request this type of invoices
normally to take the purchasing decisions. Even though this is a nominal
invoice, the supplier cannot deviate the prices in final invoice Generally, because
supplier has no ethical right to deviate from the proforma invoice. Proforma
invoices do the job of Quotations. As mentioned above, a customer may request a
Proforma invoice at below situations.
A customer request Proforma invoice before providing service
or good, to get the purchasing decision after comparing the alternatives or
similar. It may use for getting approval from a company too.
In this situation, customer may request a Proforma invoice
to pay an advance or part payment to supplier. Also, customer may take this to
avoid the risks such as price changing in future.
Types of Proforma Invoicing
These Proforma invoices are issued writing manually by hand
in a paper and this method is out of date now.
Most of the companies are issuing system generated Proforma invoices
nowadays. New ERP and accounting systems are allowing this invoicing method.
Journal Entry for Proforma invoicing
The Proforma invoicing does not record any journal entry.
Process of Proforma Invoicing
1.
Request from selling department or customer
2.
Entering data according to the rate card and
issued goods with the description
3.
Printing the Proforma invoice and issuing to
customer
Tax impact on Invoicing
Since this is a nominal invoice, there is no any bound to
any law. Hence the taxes will not be recorded with Proforma invoice issuing.
Invoice Format
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