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.
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.
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.
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.
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.
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).
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.