Purchasing procedure varies with different business forms, but all of them follow a general pattern in the purchase and receipt of materials and payment of obligations. The important steps in purchasing and receiving procedure are as follows (Fig.9.1).
STEP-I: Purchase Requisition:
A form known as purchase requisition is commonly used as a formal request to the purchasing department to order goods or services. The purchase requisition serves three general purposes:
1. It fixes the responsibility of the department/ personnel making the purchase requisition.
ADVERTISEMENTS:
2. It can be used for future reference.
3. It automatically starts the purchasing process and informs the purchasing department of the need for the purchase of materials.
Usually, purchase requisitions are prepared by the storekeepers for regular stores items which are below or approaching the minimum level of stock or to replace stock of materials and parts in stores. Purchase requisitions may also originate with department heads that require special equipment or materials not stocked as regular items.
ADVERTISEMENTS:
The production control department can also give requisitions for the purchase of specialized materials. A typical purchase requisition contains details, such as number, data, department, quantity description, specification, signature of the person initiating the requisition, and signature of one or more officers approving the purchase (Fig.9.2). Copies of the purchase requisition are sent to the purchasing department and accounting department.
STEP-II: Purchase order:
After the requisition is received duly approved, the purchasing department places an order with a supplier, offering to buy certain materials at stated prices and terms. For routine purchases, the order is placed through established supplier. In other cases, the purchasing department may ask for bids or send out requests for quotation before placing the order.
The objective is to secure the highest quality materials at the lowest price and due consideration is given to terms and delivery dates. The purchase order is formal contract for the supply of materials.
ADVERTISEMENTS:
The order should clearly state the materials required and the price and provide information, such as delivery period and the department for whom the materials are purchased (Fig.9.3.).
The vendor supplier returns an acknowledgement of order accepting it. This vendor may inform of any changes in the order about which both parties should agree in the form of an amendment to order. Copies of the purchase order are sent to the departments concerned, the sender of the purchase requisition, and the stores department advising them to expect the materials as specified and where to send them upon receipt. Copies, of the purchase requisition and the purchase order are sent to the accounting department, to be used in checking the supplier’s invoice when a voucher is being prepared for payment.
STEP-III: Receiving Materials:
The receiving department performs the function of unloading and unpacking materials which are received by an organisation. In this task, the receiving department does many activities, such as counting materials received, making physical inspection of goods received, comparing goods received with the description on the purchase order, making a record of goods received, notifying the purchasing department of discrepancies discovered and damage in transit.
Both the condition and quality of the materials may need checking and for materials or parts with a high degree of accuracy and performance, a formal inspection may be necessary. This will need an inspection report which is sometimes incorporated in the receiving report, indicating the items accepted and rejected, with reason. Two functions are performed by the receiving report.
(i) It notifies the accounting department that the materials have been received and that a voucher can be prepared for payment.
(ii) It determines and places initial responsibility for materials on the receiving clerk and the receiving clerk continues to have this responsibility until delivery is made to the store room. In some business firms, the store department functions as the receiving department also.
Several copies of the receiving report or goods received note (Fig. 9.4) are prepared; one going to each department interested in the arrival of materials, including stores, buying and accounts departments.
STEP-IV: Approval of Invoices:
Invoice approval is an important step in a materials control programme. It indicates that goods according to the purchase order have been received and payment can now be made. However, if the goods or equipments received are not of the type ordered, or are not in accordance with specifications, or damaged, the purchasing department issues a return order indicating that the goods are to be returned to the supplier.
When the invoices of goods are received by the purchasing department, the process of gathering the relevant documents connected with each purchasing and the preparation of the voucher begin. In some business firms, this task is done by the purchasing department and in some firms the accounting department performs this task.
A good system of materials control, however, requires that purchase invoices should be verified by a responsible centre other than the purchasing department to avoid any possibility of collusion or malpractice. For the purpose of verification, the basic information is communicated to the checking responsibility centre in the form of a copy of the purchase order for price, quantity, description of goods, delivery period of time, payment terms and special conditions.
STEP-V: Making Payment:
After the purchase invoice total is approved, the process of making payment begins. Payment depends on the terms agreed upon on any particular order, and any term which differs from normal practice should be considered individually.
When it is found that items written on the invoice qualify for payment, a remittance advice is prepared after providing for deduction of discounts, if any. A cheque is drawn for the net amount.
The cheque is sent to the supplier with a copy of the remittance advice so that he receives a clear indication of the composition of the payment. The necessary accounting entries are made in individual bought ledger accounts.
