Question

After speaking with Bill it becomes obvious that he doesn’t understand how accounts are processed, explain the process of ordering an item and how the transaction is recorded in the company accounts (in your conversation you will need to discuss authorisation, receipt of invoice, matching to purchase order and checking details on order and invoice).

What steps would you take if you found a discrepancy on the invoice?

Answer 1

Ordering an Item in a Company involves lot of procedure / processes to ensure Control over the Item, Authorisation, Payment etc. The same is elaborated below:

#1. To identify the requirement of an item; after identification the concerned department shall raise Purchase Requisition [should be approved / authroised by the Stores in-charge]

#2. Selection of Sources for the identified / required item. Many Companies follow the system of selecting minimum of 3 sources [Purchase Department's Responsibility]

#3. Request for Quotation from the selected Sources [Purchase Department to approve & coordinate]

#4. Receipt and Analysing the details received from the Vendors [Purchase Department's Responsibility]

#5. Selection of Vendor (based on Quality, Duration for Supply & Rate / Cost of the Item etc.) [Purchase Department's Responsibility in consultation with Accounts Department]

#6. Releasing the Purchase Order to the selected Vendor [[Purchase Department's Responsibility]]

#7. Receipt of Item alongwith Invoice [Till receipt of item Purchase Department to coordinate with Vendor]

==> Accounting for Receipt of Item (Inventory) Inventory Dr. / Vendor Cr.

#8. Checking the Item (Quantity, Quality, Rate etc.) and the Invoice for correctness with the Purchase Order [Incase of any discrepancy the disputed quantity to be returned to the Vendor and proportionate amount to be adjusted from the Original Invoice received]

==> Accounting for Return of Item (Inventory) Vendor Dr. / Inventory Cr.

#9. Payment for Invoice [after approval from the Purchase Department, Accounts Department shall initiate the process for payment]

==> Accounting for Payment Vendor Dr. / Bank Cr.

#10. Closing the Purchase Order