ACCT10003 Lecture Notes - Lecture 6: Stockout, Preorder, Purchase Order
19 Jun 2018
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Accounting Processes and Analysis
Lecture 6: Purchases and Payments Business Processes
A Purchase
From the business perspective, a purchase includes:
- Purchase of inventory for resale
- Purchase of raw materials for production
- Purchase of non-current assets
- Purchase of employee time (wages)
- Purchase of services/products of the use of the business (expenses)
Business goals in relation to purchases involve:
Determining requirements
- Identify markets; Identify sales opportunities
Determining order quantity
- Ordering more/less frequently; Minimising the total of Ordering costs, Holding costs and Stock-out
costs; Just-in-time (JIT); Ad Hoc (one-off purchases e.g. consultant times); Purchase requisition
(purchase requirements)
Order goods and services
- Select vendor; Quality of good; Reliability of delivery; Price and Payment terms
Prepare purchase order
- Document or electronic form sent by purchaser to vendor; Contract between purchaser and vendor
once vendor has accepted; Blanket purchase orders/Annual agreements
Receive goods and services
- Should goods be accepted?; Accepting goods creates obligation to pay, and creates storage and
handling costs; Ensure correct amount of the right goods in acceptable order; Reject non-
conforming goods
Complete receiving report
- Record of item and quantity received; Evidence of who received and who checked receipt; Receipt
can be annotated on a copy of the purchase order; Compare receiving report and purchase order;
Quantity receipted increase inventory on hand
However, a purchase cannot occur without underlying business events
Purchase events:
- Including requisitioning goods and services; requesting quote; preparing purchase orders; receiving
the goods/services; storing goods received for inventory.
Payment events:
- Checking and approving the suppliers invoice; recording the liability; paying the liability; recording
the payments.
How a Purchase Happens
Purchase of Inventory:
- Identify goods required; Request quote; Preparing purchase order; Receiving the goods; Storing
goods received; Check and approve suppliers invoice; Record the liability; Pay the liability; Record
the payment
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Document Summary
Purchase of services/products of the use of the business (expenses) Ordering more/less frequently; minimising the total of ordering costs, holding costs and stock-out costs; just-in-time (jit); ad hoc (one-off purchases e. g. consultant times); purchase requisition (purchase requirements) Select vendor; quality of good; reliability of delivery; price and payment terms. Document or electronic form sent by purchaser to vendor; contract between purchaser and vendor once vendor has accepted; blanket purchase orders/annual agreements. ; accepting goods creates obligation to pay, and creates storage and handling costs; ensure correct amount of the right goods in acceptable order; reject non- conforming goods. Record of item and quantity received; evidence of who received and who checked receipt; receipt can be annotated on a copy of the purchase order; compare receiving report and purchase order; However, a purchase cannot occur without underlying business events. Including requisitioning goods and services; requesting quote; preparing purchase orders; receiving the goods/services; storing goods received for inventory.
