Chp-17 ~ Procedure And Documents Used In Home Trade

Question 1

What is the meaning of home trade?

Answer 1

In home trade, goods are purchased and sold within the boundaries of one country.
Both buyers and sellers are residents of the same nation.
Goods may be purchased and sold directly or through middlemen.
The buyer and seller settle the terms and conditions through mutual negotiations.
Terms and conditions relate to quantity, quality, price, discount, delivery, and payment.
Goods may be sold for cash or on credit.

Question 2

What are the various steps involved in the procedure of home trade?

Answer 2

A trade transaction in home trade involves the following steps:
1. Enquiry
2. Quotation
3. Catalogue and price list
4. Order
5. Acknowledgement
6. Execution of order
7. Advice or despatch note
8. Delivery note
9. Invoice
10. Proforma invoice
11. Delivery of goods
12. Payments

Question 3

What is an enquiry?

Answer 3

An enquiry is a request which an intending buyer sends to a seller, seeking the following information:
i. Quality, size, design, quantity, and other specifications of goods to be purchased.
ii. Price per unit
iii. Terms of delivery
iv. Terms of payment
v. The date up to which the offer is valid.

Question 4

What is a quotation?

Answer 4

A quotation is a written reply to an enquiry.
It is sent by a seller to an intending buyer.
It is an offer made by the seller to sell certain goods at stated price and under the specified terms and conditions.
The object of a quotation is to convert enquiries into orders.
A quotation usually contains the following information:
i. Quality, size, design, quantity, and other specifications of goods to be purchased.
ii. Price per unit
iii. Terms of delivery
iv. Terms of payment
v. The date up to which the offer is valid.
vi. Quantity of goods available

Question 5

How many copies of a quotation is prepared?

Answer 5

Quotations are generally prepared in triplicate with proper reference to the enquiry.
One copy is sent to the prospective buyer, second copy is sent to the travelling salesman of that territory for follow up, and the third copy is filed for future reference.

Question 6

What is a catalogue?

Answer 6

In case the intending buyer requests for additional information, the seller may send a catalogue to him.
A catalogue is a printed handbook.
It is prepared by the seller to inform the prospective customers about the goods available for sales, their prices, and other terms and conditions.

Question 7

Why are price lists prepared?

Answer 7

The prices of goods keeps on changing.
Therefore, price lists are prepared to supplement catalogues.
The price stated in the price list is known as ‘List Price’.

Question 8

What is an order?

Answer 8

An order is a formal acceptance by the buyer after he is satisfied with the terms and conditions given by the seller in his quotations.
An order must clearly specify details regarding:
i. Number of the order for future reference
ii. Name and address of the buyer
iii. Quantity and quality of goods required
iv. Price to be paid
v. Time, mode and place of delivery
vi. Terms as to credit, discount, packing, etc.
vii. Special instructions, if any.

Question 9

How many copies of an order is prepared?

Answer 9

An order is generally prepared in triplicate.
One copy is send to the seller, second copy is sent to the godown, and the third copy is kept in the records.

Question 10

What is acknowledgement?

Answer 10

Acknowledgement is sent to inform the buyer about the receipt and acceptance of the order. The order is stamped with the date of receipt, given a serial number, and is recorded in the Order Received Book for future reference.

Question 11

What is an advice note?

Answer 11

After the despatch of goods, the seller sends an advice note informing the buyer about the despatch of goods and requesting him to take delivery of goods.
Invoice and documents of title are sent along with the advice note.

Question 12

What are purposes of an advice note?

Answer 12

Advice note serves the following purposes:
a) It enables the buyer to take necessary steps for taking delivery of the goods
b) It enables the customer to identify the goods
c) It informs the buyer about the time of arrival of goods at his place.

Question 13

What information does an advice note contain?

Answer 13

Advice note contains the following information:
a) Description and quantity of goods sent
b) Date of despatch of goods
c) Mode of despatch of goods

Question 14

What is a delivery note?

Answer 14

It is a document sent by the seller to the buyer along with the goods.
It contains details about the buyer’s order number, quantity, and description of the goods sent.
The buyer signs the delivery note as an acknowledgment of the receipt of goods.

Question 15

What is an invoice?

Answer 15

Invoice means a bill of charges or a document sent by the seller to the buyer when goods are supplied.
It shows the goods despatched, their nature, quantity, price, terms of delivery, terms of payment, and the amount payable by the buyer to the seller.

Question 16

How many copies of an invoice are prepared?

Answer 16

An invoice is generally prepared in triplicate.
One copy is sent to the buyer, the second copy is sent to the Accounts section and the third copy is kept in office records.

Question 17

What does an invoice contain?

Answer 17

An invoice generally contains the following details:
a) Name and address of the seller
b) Name and address of the buyer
c) Reference to the order number
d) Serial number and date of the invoice
e) Quantity and description of goods
f) Terms of payment
g) Trade discount and incidental expenses

Question 18

What are the functions of an invoice?

Answer 18

The invoice is a very important document used in trade. It performs the following functions:
a) It informs the buyer about the despatch of goods and the total amount payable by him.
b) It helps the buyer in ascertaining the cost of goods and in fixing the selling price
c) It enables the buyer to locate any error or discrepancy in his order and supply of goods
d) It serves as the basis of recording the transaction in the books of account of the buyer as well as seller
e) It helps the seller to know the amount to be collected from the buyer.

Question 19

What is a proforma invoice?

Answer 19

Sometimes, a proforma invoice is sent prior to the actual sale in anticipation to inform the prospective buyer about the amount he would be required to pay in case he purchases the specified goods.
It is a quotation supplied in the form of an invoice.

Question 20

When is it required to send a proforma invoice?

Answer 20

A proforma invoice is sent in the following cases:
a) When the goods are sent on approval basis
b) When the goods are sent to the consignee for sale
c) When the supplier receives payment in advance
d) When the goods are to be sent abroad, a proforma invoice is submitted to customs authorities to facilitate the calculation of customs duty to be paid.

Question 21

What is a debit note?

Answer 21

A debit note is a document which one party (buyer or seller) sends to the other party (seller or buyer).
It states that the receiver’s account has been debited with the specified amount and for the specified reasons.
It is a written statement used to intimate errors in invoice or debit for other reasons.
It is in the form of an additional invoice.

Question 22

When does a SELLER send a DEBIT note TO the BUYER?

Answer 22

A seller may send a debit note to a buyer in the following cases:
a) When an item has been undercharged in the invoice
b) When some item has not been charged in the invoice by mistake.
c) When more goods have been sent than invoiced
d) When the buyer fails to return the containers which are returnable and which have not been charged in the invoice.

Question 23

When does a BUYER send a DEBIT note TO the SELLER?

Answer 23

A buyer may send a debit note to a seller in the following cases:
a) When the buyer has returned some goods to the seller
b) When the seller has overcharged the buyer in an invoice
c) When the seller makes an allowance to the buyer for damaged or defective goods
d) When the seller has not sent some goods charged in the invoice.

Question 24

What is a credit note?

Answer 24

A credit note is a document prepared and sent by one party to the other.
It informs the receiver that his account has been credited with the specified amount and for the specified reasons.
It is the opposite of debit note.

Question 25

When does a SELLER send a CREDIT note TO the BUYER?

Answer 25

A seller may send a credit note to the buyer in the following cases:
a) When an item has been overcharged in the invoice
b) When less goods have been sent that invoiced
c) When the buyer has returned certain goods as they are inferior or damaged
d) When some some of the goods are damaged and the buyer is willing to accept them at less than invoiced price
e) When the buyer has returned certain containers which have been charged in the invoice.

Question 26

When does a BUYER send a CREDIT note TO the SELLER?

Answer 26

A buyer may send a credit note to the buyer in the following cases:
a) When the seller has undercharged the buyer in the invoice
b) When the seller has by mistake sent more goods than invoiced
c) When some item has not been charged in the invoice by mistake
d) When the buyer fails to return the returnable containers which have not been charged in the invoice.

Question 27

What is the difference between an invoice and a proforma invoice?

Answer 27

1. Real statement about the cost of goods sold || Imaginary invoice or a quotation drafted in the form of an invoice.
2. Sent by seller to buyer after despatch of goods || Sent before the despatch of goods.
3. Used in all contract of sale, inland and foreign || Generally used in consignment sale and foreign trade
4. Serves as the basis for making entries in the books of accounts || Provides no such basis.