Purchase Procedures and the Documents They Generate
Chapter Eleven
Syllabus topic 2, "Meaning, Need for and Importance of Materials, Procedures, Documentations and Inventory Control techniques"
Pages 28 to 29 of 82
In one line
Material moves through requisition, order, receipt, inspection and issue, and each step leaves a document whose purpose is that no one person can both authorise and record.
The cycle, document by document
| Step | Document | Who raises it | What it controls |
|---|---|---|---|
| 1. A department needs material | Purchase requisition | Storekeeper, or the department | That buying is requested by someone entitled to request it |
| 2. Suppliers are asked to quote | Request for quotation, and the quotations | Purchase department | That the price was tested against the market |
| 3. The order is placed | Purchase order | Purchase department | The agreed quantity, price, quality and delivery |
| 4. Goods arrive | Goods received note | Receiving department | That what arrived is what was ordered |
| 5. Goods are checked | Inspection note | Inspection | Quality, and the rejection of what fails |
| 6. Goods enter store | Bin card updated | Storekeeper | The quantity on hand, at the bin |
| 7. Goods are recorded | Stores ledger updated | Costing office | The quantity and value, in the accounts |
| 8. Production draws material | Material requisition, or stores requisition | Foreman | That issues are authorised and charged to a job |
| 9. Material comes back | Material return note | Foreman | That unused material is credited back |
| 10. Material moves between jobs | Material transfer note | Foreman | That the cost follows the material |
The purchase requisition and the purchase order are different documents raised by different people, and that separation is the control. The storekeeper says what is needed; the purchase department decides from whom and at what price.
The three documents most often confused
Purchase requisition asks the purchase department to buy. Internal.
Purchase order instructs the supplier to supply. External, and a contract.
Material requisition asks the storekeeper to issue material already in stock. Internal, and it is the document that charges a job.
Bin card against stores ledger
| Bin card | Stores ledger | |
|---|---|---|
| Kept by | The storekeeper | The costing office |
| Kept where | At the bin, with the material | In the accounts department |
| Records | Quantity only | Quantity and value |
| Written up | As each movement happens | From the documents, periodically |
| Purpose | To know what is physically there | To know what it cost and to charge it |
Two records of the same thing, kept by two different people, is the point. If they disagree, something has gone wrong, and comparing them is a standard control.
Why the documents matter to a cost accountant
They are where the cost sheet's figures come from. The material requisition says which job to charge. The goods received note and the invoice say what the material cost. Without them the cost per unit is a guess.
And they are the audit trail. A cost that cannot be traced to a document cannot be defended.
The rest of this chapter
Module one is free. The rest of this chapter comes with the B.Com. (Accountancy) Semester 5 notes.
You are reading a chapter from a later module. Everything in module one of every subject stays free, and so does the syllabus.
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Free either way: the syllabus, and module one of every subject.
The rest of this subject
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