It is important that purchases are properly authorised. If they are not, anyone could order whatever goods they want for any reason. For example, a junior office clerk may decide to order a new computer from a supplier because they want a machine that is faster and more powerful than the one they currently have. However, this should be properly authorised by a suitably responsible person, such as a senior manager. The manager may decide that the computer used by the clerk is sufficiently good enough and therefore refuse to authorise the purchase.
To authorise a purchase, it is usual to complete a form known as a purchase requisition. The form is prepared by the person requesting the goods, and is then signed by another person who has the authority to agree to the order being placed. (In much the same way, if an individual wants to obtain an item that is held in the warehouse, they may need to prepare a stores requisition, and have it authorised by an appropriate person.)
The authorised purchase requisition is then given to a person whose job it is to place the order with a supplier. Larger businesses may have a purchasing department, with buyers whose job is to place orders with suppliers on the best financial and credit terms available. In smaller businesses, orders may be authorised and placed by a senior manager.
A purchase order is prepared and sent to the chosen supplier, after the details have been discussed with the supplier, and the sales price and credit terms agreed. Purchase orders should have a unique identification number (the purchase order number).
An example of a purchase order is shown below together with a description of its contents.
Please print 25,000 labels at $10.50 from copy supplied per 1,000
Needed by 20 July 20X4
Payment within 30 days of delivery.
When the goods are delivered, the supplier provides a delivery note. The employee taking the delivery, who may be a member of the stores or warehouse staff, should immediately check the delivery note details against the physical items that have been delivered. For example, if the delivery note states that 40 boxes of photocopier paper have been delivered, the boxes should be counted to make sure there are 40, and not just 39.
Delivery notes are not in a standard format, because each supplier has a different design of form, often in different paper sizes and colours. It is therefore quite common for the details of a delivery to be copied from the delivery note on to a goods received note. Extra details can be added on to a goods received note, such as the inventory identity numbers of the items delivered.
The next step is to check that the items delivered were actually what were ordered. This is done by comparing the details on the goods received note with the purchase order. If the supplier has supplied the wrong items, or the wrong quantity, the problem should be identified and resolved as soon as possible after delivery has been made -and certainly before the goods are paid for.
The supplier issues an invoice to the customer when the goods are delivered, or soon after, this is a purchase invoice which will be needed in the accounts department.
A purchase invoice is similar to a sales invoice, except that it is an invoice received from a supplier instead of an invoice issued to a customer. In fact, for the supplier of the goods or services, it is a sales invoice. This means that a purchase invoice is likely to have the words 'sales invoice' printed on it. A business receives invoices from many different suppliers, and so purchase invoices will be in different designs, sizes and colours, and the information they contain is set out differently by each supplier. An example of a purchase invoice is shown below.
80 New High Street
Exeter
Devon EX4 2LP
Tel: 01747 852481 Fax: 01747 852749
Terms: Net cash within 30 days
A purchase invoice is missing some items of information that the buyer needs to add. This additional information is added when the invoice has been received and when it is checked. In many cases, the information is added by stamping a grid-like box on to the invoice, or adding a stick-on label on the invoice. The box or label is used to add items of information such as
ACTIVITY 2
A purchase invoice for a business that buys goods from a supplier is the sales invoice from the supplier. A business receives purchase invoices from its suppliers, and it keeps a copy of sales invoices that it sends to customers.
If you were shown a batch of sales invoices for your business and a batch of purchase invoices, how might they look different?
For a suggested answer, see the 'Answers' section at the end of the book.
A member of the accounts department will check the details on the invoice against the purchase order. To do this, the purchase order and the invoice have to be matched together. If the purchase invoice shows the buyer's purchase order number, the task of matching the documents is made much easier and quicker.
If the invoice details appear to be correct, the invoice should be submitted for authorisation by a responsible person, possibly a senior manager. Usually, authorisation is given by means of adding a signature to the invoice.
The details of the authorised invoice are then recorded in the accounting system, and payment is made when the agreed credit period comes to an end.
When paying a purchase invoice, some businesses send a remittance advice with their payment. A remittance advice is a document giving details of the invoice that is being paid (or possibly, of several invoices that are being paid at the same time), including the supplier's invoice number. If any prompt payment discount has been deducted from the invoice amount in making the payment, this will also be detailed on the remittance advice. This will help the supplier to identify what the payment is for.
ACTIVITY 3
Explain the purpose of the following sales documents, and list them in the order in which they are produced:
Also, explain the purpose of the following purchase documents, and list them in the order in which they are produced:
For a suggested answer, see the 'Answers' section at the end of the book.