Purchase of Productive Materials:
Learning Objective:
-
Explain the procedure of
purchasing productive materials.
The actual purchase of all materials is
usually made by the purchasing department headed by a general purchasing
agent. In some small and medium size companies, however, department
heads or supervisors have authority to purchase materials as the need
arises. In any case, systematic procedures should be in writing in order to
fix responsibility and to provide full information regarding the ultimate
use of materials ordered and received.
The purchasing department
should receive
purchase requisitions for materials, supplies, and equipment; keep
informed concerning sources of supply, prices, and shipping and delivery
schedules; prepare and place purchase orders; and arranging for
adequate and systematic reports between the purchasing, the receiving, and
the accounting departments. An additional function of the purchasing
department in many enterprises is to verify and approve for payments all
invoices received in response to purchase orders placed by the department.
This procedure has the advantage of centralizing the verification and
approval of invoices in the department that originates the purchases and
that has complete information concerning items and quantities ordered,
prices, terms, shipping instructions, and other conditions and details of
the purchases. However, invoice verification and approval by the purchasing
department may violate sound procedures and principles of internal control,
particularly if the same individual prepares an order and later approves the
invoice. Consequently, invoice audit and approval in many instances have
been made a function of the accounting department, which receives a copy of
the purchase order. The purchase order carries all necessary
information regarding prices, discount agreement, and delivery stipulations,
as well as the number of the account to which the order is to be charged.
Furthermore, the centralization of invoice approval in the accounting
department helps avoid delaying payments beyond the discount period. |
