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5. Importance of Invoice
An invoice is an essential document in trade. It includes not only the price and
expenses of the goods but also, the other terms and conditions of the trade. It has certain
importance, which are mentioned below:

i. It gives information to the importer and exporter about the amount of goods to be
paid or received.
ii. It provides the detail information like name, quality, quantity and rate of goods.
iii. It provides information of the last date of payment.
iv. It provides the basis for determining the selling price of the goods.
v. It helps to confirm whether the goods are as per the order placed or not.
vi. It helps to settle disputes and misunderstandings as a proof.
vii. It helps to determine the commission and discount to the consignee or importer.
viii. It helps to know the receivable and payable amount clearly.

6. Types of Invoice

In addition to the description of the goods, their price and discount, the invoice
also mentions a number of carriage expenses. As the agreement between the seller and
the buyer or exporter and importer about the price and expenses of the goods, it may
differ with each other. Thus, there are different types of invoices. The most common and
popular types of invoices are briefly discussed below:

i. Loco Invoice
The word ‘loco’ is derived from the word local. The invoice which is prepared with
the local price of the seller’s or exporter’s godown is known as loco invoice. Since no
other expenses except the price of the goods or cost of goods are included in it, the buyer/
importer should bear all the expenses in the carriage of goods up to his godown.
Loco invoice = Local cost of goods

ii. Free on Board Invoice (FOB Invoice)
The invoice which includes all the charges and expenses made during the carriage of
goods from the seller’s godown up to the ship board is known as FOB invoice. It includes
all other charges and expenses for the carriage of goods from the factory to ship with
the price of the goods. And such other expenses should be paid by the buyer/importer
himself. Hence,

FOB price = cost of goods + all expenses till the goods are loaded on board of the
ship.

iii. Cost and Freight Invoice (C and F Invoice)
Cost and freight invoice is that which mentions the cost freight, export duty, packing
charges, etc. except insurance premium made by the seller/exporter is known as cost
and freight invoice. Thus, the total of such expenses along with the price of the goods

56 Aakar’s Office Practice and Accountancy - 10 Trade 57