Glossary
What is a purchase order?
What a purchase order is, what it commits each side to, and how it turns into a purchase bill when the goods arrive.
Updated
In short
A purchase order is the document a buyer sends a supplier to order goods at agreed rates, quantities and dates. In SimpleERP you confirm a purchase order and convert it to a purchase bill, in parts if needed.
A purchase order (PO) is the document a buyer sends a supplier to order goods or services, listing items, quantities, agreed rates, taxes, delivery date and terms. Once the supplier accepts it, both sides are committed to those terms. It records nothing in the books: the purchase is recorded when the supplier's bill arrives, which is checked against the order.
Purchase order: a worked example
Harbour Steel Furniture, a fictional furniture maker buying in US dollars, orders steel for next month's racks from Atlas Steel Supply, with tax at 20%.
| Item | Qty | Rate | Amount |
|---|---|---|---|
| Cold-rolled steel sheet 0.8 mm | 2,000 kg | $6.80 | $13,600 |
| Square steel tube 25 mm | 500 kg | $7.20 | $3,600 |
| Value before tax | $17,200 | ||
| Tax at 20% | $3,440 | ||
| Total | $20,640 |
FAQ
Questions, answered
What is the difference between a purchase order and a purchase bill?
The purchase order is what you asked for, sent before delivery. The purchase bill is the supplier's tax invoice for what they actually supplied. The bill is what records the purchase, the input tax and the amount you owe, so you check it against the order before posting.
Is a purchase order legally binding?
Once the supplier accepts it, a purchase order is generally treated as a contract on the terms it states, such as rates, quantities and delivery dates. Keep terms clear on the order itself, because that is what both sides will point to if something goes wrong.
Can I reclaim VAT or GST on a purchase order?
No. Input tax is reclaimed on the supplier's tax invoice, once you have received the goods or services. The purchase order only fixes the price; the reclaim follows the bill.
Can one purchase order be billed in parts?
Yes. Suppliers often deliver in lots. In SimpleERP each bill created from an order reduces what is left on it, line by line, and the order shows as partially billed until every quantity has been billed.
Related
Keep reading
Purchase
Purchase orders, supplier bills that receive stock, debit notes and payables.
Read morePurchase order format
A free purchase order format in Excel, Word and PDF with tax and terms, filled in for a steel order, and how SimpleERP turns it into a supplier bill.
Read moreAccounts payable
Money owed to suppliers for goods and services received on credit.
Read more
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