An enquiry from a potential
purchaser is the beginning of a financial transaction. The enquiry may be made
by phone, in person or by ordinary or electronic mail.
The potential seller will follow
this through by giving details of prices, a description of the goods and
services and providing price lists, brochures or catalogues. This will help the
enquirer to make a decision.
It is common practice to ask for
quotation so that comparisons are made with quotes submitted by other
organizations. Sometimes the purchasing department may ask for three quotations
to be obtained.
When the enquirer becomes a
purchaser, the more formal documentation takes place.
Purchase requisition
A purchase requisition is an
internal document. It is not sent to a supplier. When a branch or department of
an organization requires the supply of goods or services, a purchase
requisition is raised.
When the requisition is approved, it
is sent to the purchasing departments. The purchasing department raises the
purchase order.
The purchase requisition is checked
against the goods and services when they are received by the branch or
department. The requisition is then moved from the “pending” file to the
“completed” file.
Purchase Order
A purchase order is raised either in
response to receiving a purchase requisition or when good are required. A
purchase order is an external document, which means that it is sent from the
purchaser to a supplier. It is an instruction from one company (the purchaser)
to another company (the supplier) to supply certain goods or services on
credit. Purchase orders may be sent electronically.
The purchaser retains a duplicate or
an electronic copy of the purchase order. The purchase order records the number
of the purchase requisition.
The duplicate of the purchase order
is checked against the invoice when the goods are received. Discrepancies
between the purchase order and the delivery are noted and appropriate action is
taken.
Invoice
An Invoice is raised in response to
receiving a purchase order. An invoice is an external document, which means
that the original is sent by the supplier to the purchaser. The invoice may be
sent either with the goods or by mail. The supplier retains the duplicate.
An invoice should
record the number of the purchase order.
The delivery docket (a copy of the
invoice, but without price) is forwarded with the goods. It is the
responsibility of the person receiving the goods to check that the items
delivered match the delivery docket and that they are in good condition.
An invoice is an essential source
document. The purchaser records details of the original invoice in the
purchases journal, the supplier records details of the duplicate invoice in the
sale journal.
Credit Note
A credit note is raised in response
to receiving returned stock, or notification of short supply or overcharging
when goods and services have been purchased on credit. The supplier sends a
credit note to the purchaser. The purchaser must give a reasonable explanation
for the return. The reason for return is shown on the credit note. The supplier
retains the duplicate.
The credit note records the number of the invoice and
purchase order.
A credit note is an essential source
document. The purchaser records details of the original credit note in the
“purchases returns and allowances” journal; the supplier records details of the
duplicate credit note in the “sales returns and allowances” journal.
Statement
A statement is prepared by the
supplier and sent to the purchaser, usually every month. For the supplier, the
statement mirrors the purchaser’s account in the “account receivable” ledger. A
statement is a monthly summary, in chronological (date) order, of all the
transactions (invoices, credit notes, receipts and cash discounts) between the
supplier and the purchaser. Statements are compiled as at the end of trading on
the last day of the month, or other agreed balancing date.
Statements are essential documents.
Statements are not source documents – they are documents against which the
supplier and the purchaser validate all other documents (invoices, credit
notes, cheque butts and receipts).
Receipt
A receipt is raised in response to
receiving a cheque, any money (cash or electronic). The supplier sends a
receipt to the purchaser. All monies coming into the organization must be
receipted; however, not all suppliers actually send receipts to purchaser.
If the purchaser has claimed a cash
discount of the payment will not equal the amount of the account. The amount
received and the amount of the cash discount must be recorded on the receipt.
A receipt is an essential source
document. The supplier records details of the receipt in the “cash receipt”
journal.