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This involves acquisition of goods/services done by the purchasing department. Its importance depends on the nature of business e.g. in a manufacturing business, the department is very important than in service industry. Purchases control is exercised to ensure that goods are purchased at right time of right quality and in right quantity. Over purchasing, under purchasing or purchase of inferior quality goods have negative effects to the business.
Purchasing procedure adopted by various organizations include:-
1. Purchases requisitions
Refer to the written requests by all departments for goods required by them, to the purchasing department. These requisitions contain the description of goods required, quantity required, and time when required. These forms are signed by an authorized person of the department that needs these goods. E.g. head of stores department, works manager etc.
2. Letter of inquiry
The purchasing department sends a letter of inquiry to various suppliers after receiving the purchase requisitions.
3. Quotation
These are received from different suppliers in response to letter of inquiry.
4. The purchase order
After receiving the quotations the purchasing department selects the best supplier and issues a purchase order. E.g. a L.P.O (local purchase order)
5. Receipt of goods
Once the supplier receives the purchase order, he makes arrangements to deliver the goods. The selling organization prepares and delivers the goods. The buying organization prepares and issues goods received note and also signs the delivery note. Other documents involved in the receipt of goods include advice note and a package sheet. Goods are mostly received by the stores department.
If goods received are of inferior quality or not according to the description given in the purchase order, then the receiving dept can refuse to accept them.
A rejection Note or goods returned note are issued.
6. Invoice – this is a claim of money by the supplier from the purchases for the goods supplied. It’s send by the supplier to the buying firm.
7. Payment – After receiving the invoice, the buyer checks the amounts due to the supplier and once satisfied he makes arrangements to remit money e.g. through a cheque. On receipt of the cheque or cash, the supplier issues a receipt as a proof that transactions have been completed.
8. Recording stock- Goods purchased are recorded in the accounting books of any organization. The entries in the cost are made from goods received notes while the financial entries are made from invoices. Both entries should be reconciled.
Wilfykil answered the question on April 17, 2019 at 06:09
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