Purchase orders are permissions slips to buy things and do not directly effect your accounting/general journal.
Purchase orders are a commercial document used to request a vendor to supply goods and/or services in return for payment from you. A Purchase Order (PO) is a written authorization for a supplier/vendor to ship products at a specified price, which typically becomes a legally binding contract once the supplier accepts it.
Purchase orders can be used to see how many items are on order and the expected arrival time of the shipment. Purchase orders may also be used to order non-inventory items, such as office supplies, furniture, computers, company tools etc.
Purchase orders are a very important part of a proper and complete accounting system for any company. Purchase orders are to be completed by authorized personnel only. They allow managers to ‘authorize’ purchases. Vendors should be notified that no one may buy from them unless the purchase includes a PO number. When vendor bills arrive at your office, the bookkeeping department can see what was ordered and what the buyer had planned to pay for it. In the case of parts, bookkeeping will know what customer or job to attribute the COGS to. In the case of supplies, bookkeeping will know what department to attribute the expense to. This is absolutely necessary for proper job costing.
You are a manager or owner and you wish to purchase a fax machine. You go on the internet and buy one for $189.95 from ACME Fax Company. The purchase was made on a credit card. You open a new PO and fill it out. You add the appropriate vendor, expense item, prices, etc. You should also add notes as to what you purchased it for and any other information you feel would be helpful. When the bill arrives (or credit card statement ) your bookkeeping department is going to wonder who bought something from ACME Fax Company. Rather than walk around asking everyone if they know who bought it, they open the PO list and look it up. There, they can see who bought it, why, and verify the price that was paid. This is the same process for office supplies and anything else.
Purchase orders are used for audit/paper trail and do not effect any accounts. Your accounting accounts are not affected until something is actually done with the goods on the PO, like:
- Receiving the items (which increases your inventory assets),
- Entering a bill for received items (which increases accounts payable),
- Paying the bill (which decreases cash on hand and decreases liabilities),
- Selling the items (which increases cash or accounts receivable)
Also note that your direct cost of the purchase is what is on the PO, not the retail price.
From the main menu, click Vendors | New PO, or
From the toolbar, click the New PO button.
Field and Button Definitions
PO Header (upper left)
- Date – Today’s date will automatically populate this field. It can be modified if necessary.
Expected Date – Today’s date will automatically populate this field. It can be modified if necessary.
PO Number – The next available number in the sequence will automatically populate this field. It can be modified if necessary.
Memo – Enter any brief information to track. It only appears on the screen. It does not appear on the printed purchase order. To record large amounts of information, use the Menu > Details feature (described below).
Vendor Information – Select the vendor from the drop-down menu. The vendor’s address, city, and state will automatically be filled in if you have this information already set up in the vendor’s record.
Notes – Much like the memo field, enter any brief information to track. It will appear on the printed purchase order. To record large amounts of information, use the Menu > Details feature (described below).
FOB – FOB is an abbreviation for Free On Board. The term is commonly used when shipping goods, to indicate who pays loading and transportation costs, and/or the point at which the responsibility and ownership of the goods transfers from shipper to buyer. In North America, the term is used in two common phrases, “FOB shipping point” (origin) and “FOB destination,” to distinguish when the title of goods passes from the seller to the buyer. Under the terms of “FOB shipping point,” the title of the goods passes to the buyer at the shipping point. Similarly, under the terms of “FOB destination”, the title of the goods passes to the buyer when the goods arrive at their destination. The distinction is important because it determines who pays for the shipping costs of the merchandise: whoever holds the title to the merchandise at the time of its shipping pays for its transportation costs unless otherwise noted (e.g., freight prepaid or freight collect). Also, it is important that if the shipment is damaged while traveling the owner must file the freight claim. ~ Source: en.Wikipedia.org
Customer (Vendor Information Area) – The Customer field in the Vendor Information area is used to easily earmark all of the Customer fields in the invoice item area. Each invoice item has it’s own customer field, which is automatically populated from the customer field in the vendor information area. The customer field in the invoice item area can also be populated with the recipient selected in the “Ship To” field, but only if the customer field in the vendor information area is blank. If both the customer field in the vendor information area and the ship to field in the Shipping Information area are populated, the customer field takes priority in the customer field of each invoice item.
Ship To – The “Ship To” field will default to your company headquarters. To set a different ship-to location, select from the drop-down menu the company name you want the items shipped to. If the Customer field in the Vendor Information area is blank, the “Ship To” recipient will be proposed in the Customer field of each invoice item.
- Item – Select from the drop-down menu the items you are wishing to purchase. If the item is not in the list you must set the item up in the Invoice Item function.
- Description – The description of the item will automatically populate.
- Qty – Enter the quantity to order.
- OH – Displays the current number of items on hand.
- BO – Displays the current number of items back-ordered.
- Rate – The default cost will dynamically populate (from when you originally set up the item) or you may enter a new cost.
- Customer (Invoice Item Area) – Earmarks that individual line item to a particular customer, who is selected from the drop-down list. This field can be automatically populated based upon either the selection in the Customer field of the Vendor Information area or the selection in the “Ship To” field of the Shipping Information area. This field can always be overridden, even if a proposal exists.
- Amount – The amount of that line item will show in the amount field.
- Rcv’d – Any quantities that have been received against the PO will show in this column.
- Department – If ordering the item(s) for use in a particular department, select that department from the drop-down menu.
- WO – The WO field is used to indicate the work order to which the line item is associated. If the Customer field has been filled in, the WO drop-down list will display work orders for that customer only. If the Customer field has not been filled in, the WO drop-down list will only make available <Lookup> as a selection. Clicking <Lookup> will open the Work Order Lookup list, which can be used to look up any work order in the system. Double-clicking on a work order will populate both the Customer field and the WO field in the original purchase order.
- Closed – If necessary, this checkbox may manually be ticked in order to close this line item (cancel, void etc). Under normal circumstances, this happens automatically as items are received from vendors. When this is checked, you will NOT be reminded that there is an open PO when you enter a bill for that vendor.
- Reimb – Used in conjunction with the “Customer” field, will add the line item to that customer’s Reimbursables List. See the related topic, “Reimbursables List” for more information.
- Total – The total of the purchase order will appear just above the line items.
Buttons on Form
Save & Close – This button saves any information and exits the form.
Save & New – This button saves any information and opens a new blank PO form ready to fill in.
Cancel – This button exits the form without saving any information.
Menu Button (options under the button)
- Menu > Save – Manually saves the form.
- Menu > Revert – Causes the form to dismiss any changes and return to information contained when last saved. It is the same as canceling the record without saving changes, then re-opening the record.
- Menu > Details – Opens a notepad for that specific purchase order, used to record miscellaneous information in larger quantities than the memo field or the notes field can handle. These details do appear on the printed PO.
- Menu > History – Opens the history for that purchase order.
- Menu > Print/E-mail – Saves the information on the form and opens the print dialog form. There you can print or even email the sales form as a PDF file. The invoice is converted to a PDF and attached to an email that you may then modify and send. Of course, you need to have an email already set up on your computer (like Outlook or Outlook Express). You can also set up the internal (built-in) emailer. This email feature will not work with any web-based email service.
- Menu > Delete – Deletes the purchase order. This function may not always be available, depending on the extent to which other transactions related to the PO have taken place.
- Menu > Edit Vendor – Provides a convenient way to edit the vendor record while editing a purchase order.
- Menu > Create Invoice – Provides a convenient way to create a new invoice from a PO. Done this way, the items contained in the source purchase order are automatically added to the new invoice.
- Menu > Create Sale – Provides a convenient way to record a new sale from a PO. Done this way, the items contained in the source purchase order are automatically added in the new sale form.
- Menu > Create Work Order – Provides a convenient way to create a new work order from a PO.
- Menu > Insert Line – This command inserts a blank line immediately above any highlighted invoice item line.
- Menu > Delete Line – This command deletes any highlighted invoice item. Clicking the red “X” left of an invoice item is another way of deleting it.
- Menu > Copy Grid to Clipboard – This option will copy the item grid to your clipboard. You may then paste it into another program. The information will be simple tab-separated text.
- Menu > Form Preferences – Allows you to add or remove columns from the item grid. You might wish to remove columns that you do not use. This preference is on a per user basis.
This feature will remove duplicate item numbers and consolidate them into one item with a quantity equal to the total quantity of those same items. It will do this for each duplicated item so that you are left with only unique item numbers. If the items have different job names, work order numbers, etc., those fields will likely be incorrect. We do not have a way of accurately resolving the differences. They are easy to fix though.
Purchase order limits can be set both globally, and for each Total Office Manager user who has clearance to create PO’s. Manage global PO limits from the main menu by clicking Edit | Preferences | Purchase Orders. Manage individual PO limits from the additional info tab within each employee record (security must be enabled to use individual PO limits).
- Purchase orders do not have a direct effect on your financials. Your financials are affected when the item is received through the Receive Items process or by entering a bill.