Customs and Border Protection, for example, uses pro forma invoices to assess duty and examine goods, but the importer on record is required to post a bond and produce a commercial invoice within 120 days from the date of entry. In some countries, customs may accept a pro forma invoice (generated by the importer and not the exporter) if the required commercial invoice is not available at the time when filing entry documents at the port of entry to get goods released from customs. īanks usually prefer a pro forma invoice to a quotation for establishment of a letter of credit or for advance payment by the importer through his bank. The content of a pro forma invoice is almost identical to a commercial invoice and is usually considered a binding agreement although the price may change in advance of the final sale.Ī Pro forma Invoice can also be used for shipments containing items that are not being bought or sold, such as gifts, samples and personal belongings, whereas a Commercial Invoice is used when the commodities shipped are being bought or sold. It is used to create a sale and is sent in advance of the commercial invoice. Simply, a 'Proforma Invoice' is a Confirmed Purchase Order where buyer and Supplier agree on the Product Detail and cost to be shipped to buyer.Ī sales quote is prepared in the form of a pro forma invoice which is different from a commercial invoice. It is not a true invoice, because it is not used to record accounts receivable for the seller and accounts payable for the buyer. It is used to declare the value of the trade. In trade transactions, a pro forma invoice is a document that states a commitment from the seller to sell goods to the buyer at specified prices and terms. Pro forma figures should be clearly labeled as such and the reason for any deviation from reported past figures clearly explained. Similarly, when a new corporation is envisioned, its founders will prepare pro forma financial statements for the information of prospective investors. Lenders and investors will require such statements to structure or confirm compliance with debt covenants such as debt service reserve coverage and debt to equity ratios. For example, when a transaction with a material effect on a company's financial condition is contemplated, the Finance Department will prepare, for management and Board review, a business plan containing pro forma financial statements demonstrating the expected effect of the proposed transaction on the company's financial viability. Consequently, pro forma statements summarize the projected future status of a company, based on the current financial statements. The pro forma models the anticipated results of the transaction, with particular emphasis on the projected cash flows, net revenues and (for taxable entities) taxes. In business, pro forma financial statements are prepared in advance of a planned transaction, such as a merger, an acquisition, a new capital investment, or a change in capital structure such as incurrence of new debt or issuance of equity. Securities and Exchange Commission requires publicly traded companies in the United States to report US GAAP-based financial results, and has cautioned companies that using pro forma results to obscure US GAAP results would be considered fraud if used to mislead investors. There was a boom in the reporting of pro forma results in the USA starting in the late 1990s, with many dot-com companies using the technique to recast their losses as profits, or at least to show smaller losses than the US GAAP accounting showed. Expenses often excluded from pro forma results include company restructuring costs, a decline in the value of the company's investments, or other accounting charges, such as adjusting the current balance sheet to fix faulty accounting practices in previous years. The pro forma accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions" when stating how much money the company actually made. 6 International Trade (Importing/Exporting).
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