And unlike with proforma invoices, you can use invoices to reclaim VAT. The document is a binding agreement, and the customer has an obligation to pay the price stated. Invoices are sent when goods have been sold or services rendered and the payment is now due. In most cases, a proforma invoice is issued after the customer has committed to the purchase, but the final details of the sale are yet to be confirmed (e.g. More details are provided, and there's room for manoeuvre in terms of negotiation before any payment is made. It holds no financial value and the sale can be accepted by the customer or it can just as easily be cancelled without any consequences.Ī proforma invoice is also sent to a customer before your products are delivered or your services are provided, but it's considered more binding than a quotation – although not legally binding like a completed invoice. Importantly, a quotation is not a document with any kind of obligation or expectation behind it. It's considerably less formal than a proforma invoice and is usually sent during the early stages of the sale when the customer initially enquires about your prices. QuotationĪ quotation is sent to a potential customer who has expressed interest in buying from your business. They’re both used largely in the same way, both provide information about a sale and neither are legal documents in their own right. On the surface, proforma invoices and quotations have quite a lot in common. What’s the difference between an invoice, a proforma invoice, and a quotation? Crucially, a proforma invoice has no fiscal value and doesn't contain a means of payment, so it should not be included in your accounting records. They also don't have a unique, sequential invoice number – something that's required on all legal invoices – and must be clearly labelled as proforma. This means that it only applies to sales that have not yet been completed. What differentiates the two, however, is that a proforma invoice’s terms of sale can still be changed. The goal of a proforma invoice is to avoid exposing your customer to any unanticipated charges or duties.Ī proforma invoice looks very similar to an invoice. It typically contains a date of issue, a description of what's being sold, and the total amount of the sale, as well as any taxes or fees that may be incurred. But for those of you left still scratching your heads, a proforma invoice is essentially a provisional bill of sale that you send to your customer before you deliver your goods or services. You may be familiar with the term ‘ proforma invoice’, especially if you’re a business owner already adept in the world of invoices. Remember to continually update the projections in your pro forma to ensure ongoing accuracy.Subscribe to our newsletter to receive monthly educational content about invoicing and accounting. Remember that creating Pro forma income and financial statements are essentially best guesses. Final Thoughts on Creating Pro Forma Statements Year one will broken down into monthly increments, while the following years ( years 2 and 3) will be broken down by quarter, and years 4 and 5 are broken down annually. This chart of accounts will make up the pro forma statement for a 3 to 5 year period. This is the second section of your pro forma financial statement.Ĭreate the chart of accounts. This portion of the pro forma statement will project your future net income, sale of assets, dividends, issuance of stocks, etc. This is an opportunity for you to evaluate if every cost is necessary, and what you can cut.Įstimate cash flows. To create the first part of your pro forma you’ll use the revenue projections from Step 1 and the total liabilities and costs found here.ĭuring this time, put a lot of thought into each expense. Your costs will be your lease, employee pay, insurance, licenses, permits, materials, etc. Your liabilities are loans and lines of credit. Research and speak to experts to determine what a normal annual revenue stream is, as well as cash flow and asset accumulation.Įstimate your total liabilities and costs. Make sure to use realistic market assumptions to write an accurate pro forma statement. Know where you stand from a current cash perspective.Ĭalculate revenue projections for your business. To start creating a pro forma statement, begin with an income statement from the current year. For example, a business may use a pro forma financial statement to show what a businesses profit was if it sold off an arm of the company.īut enough with what a “pro forma” is, you care about how to quickly create a Pro Forma Income and Financial Statement. Simply put, it’s a future or projected income statement, or it can even be used to restate financial books in an unofficial way. You may be wondering what is a “pro forma” income statement?
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