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Differences Between Invoice, Pro-Forma Invoice, Estimates And Purchase Order

We come across terms like Invoice, Pro-Forma Invoice, Estimate and Purchase Order while doing day-to-day business. Though they may appear to be similar at the outset, these individual documents’ functions are different. In this article, we will discuss the differences between them:

Differences Between Invoice, Pro-Forma Invoice, Estimates And Purchase Order:

Basis of Differentiation Invoice Pro-Forma Invoice Purchase Order Estimates
Meaning An Invoice is a document that contains the details of the goods or services that are dispatched to the customer, the price of these goods or services, the terms of delivery and the payment terms (as agreed in the contract). A Pro-Forma Invoice is a preliminary invoice stating the description of the products/services that are yet to be delivered, the price of the products/services, the terms of delivery and the expiry date of the Pro-Forma Invoice. A Purchase Order is a formal document that states the products or services required, the quantities, and the expected price. The purchaser sends this document to the seller for approval. An Estimate is a formal document which states the overview of the goods or services that the buyer requires with an approximate price against each product or service.
Who issues it to whom? The seller issues it to the buyer. The seller issues it to the buyer. The buyer issues it to the seller. The seller issues it to the buyer.
Why is it issued? To intimate the buyer that the product has been dispatched or the service has been completed, and the payment is due. To provide full details of the proposed sale to the buyer before the actual sale takes place so that the buyer can take an informed decision. To place an order for the requirements of goods or services. To facilitate the buyer when he/she is in the process of finalising the vendor and terms of sale.
When is it issued? It is issued after the goods or services have been dispatched or provided, respectively, but before the payment is received. It is issued before the seller dispatches the goods. The buyer issues it after receiving a quote from the seller. It is issued at the request of the buyer before finalising the terms of the sale.
What does it lead to? It leads to the sale of goods or services. It leads to confirmation of the terms of sale. It leads to getting the goods or services ready for sale. It leads to confirmation of the value of the goods or services (after negotiation, if any).
Whether the terms of sale can change post issuing this document? The terms of sale cannot change once an invoice is issued unless mutually agreed upon. The terms of sale can change after the Pro-Forma Invoice has been raised. Not applicable (as the buyer is issuing a list of their requirements). The terms of sale can change post issuing an estimate.
What is the entry passed in the books after this document is issued? Debtor A/c        Dr

To Revenue A/c

No entry passed in the books. No entry passed in the books. No entry passed in the books.

Generally, the order of issuing Invoice, Pro-Forma Invoice, Estimates And Purchase Order is as follows:

Differences Between Invoice, Pro-Forma Invoice, Estimates And Purchase Order

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