Q.Explain the Proforma Invoice and the Account Sales, and state how they differ from each other.

A Proforma Invoice travels WITH the goods, from consignor to consignee, and creates no debt; an Account Sales travels back, AFTER selling, reporting the real result to the consignor.

A Proforma Invoice is a document sent by the consignor to the consignee, along with (or just ahead of) the goods. It resembles an ordinary invoice in layout — listing the goods, their quantity, and a stated value — but it does NOT create any debtor-creditor relationship, since the consignee has not bought anything. Its purposes are to inform the consignee of exactly what has been despatched, to suggest a reference or minimum selling price, and to fix a value for insuring the goods. The price shown is often deliberately loaded above the consignor's actual cost, to keep the true cost and profit margin confidential from the consignee.

An Account Sales is the consignee's own periodic report, sent BACK to the consignor after some or all of the goods have been sold. It states the quantity received, sold and remaining unsold; the gross sale proceeds actually realised; the expenses the consignee has personally paid on the consignor's behalf; the consignee's commission; and the net balance now due to the consignor. Because the consignor has no other way of knowing what genuinely happened at the consignee's end, it is the Account Sales — never the Proforma Invoice — that the consignor uses to record actual sales, expenses and commission in the Consignment Account. …

A common confusion is treating the Proforma Invoice's stated value as the consignor's real cost, or as a genuine amount owed by the consignee — the Proforma Invoice price is only a reference figure (often deliberately loade …