Question

In: Accounting

Write detailed narrative description to the process of purchasing, Inventory receiving, Payment of A/P

Write detailed narrative description to the process of purchasing, Inventory receiving, Payment of A/P

Solutions

Expert Solution

PURCHASING:

It is the process of buying goods and services. The purchasing process can vary from one organization to another, but there are some common key elements.The process usually starts with a demand or requirements. A purchase requisition is generated which details the requirements which leads to an action among procurement / purchase department. A quotation is then raised asking the vendors to quote their prices for the goods and services. Vendors or suppliers then send their responses to the quotation. The company collects quotation from all the vendors and then decides from which vendor goods or services are to be purchased. The company selects the vendor on the basis of price quoted, quality of product offered by vendor, availability of product with the vendor, capability of vendor to satisfy the order on timely basis, etc. Then the vendor is given the purchase order which contains the terms and conditions of the delivery.

INVENTORY RECEIVING:

After purchase order is given to the vendor, he provides the company with the required goods . He sends the delivery of goods to the company. The truck arrives at the company's dock. The workers then start to unload the goods from the truck to a specified location in the organisation's warehouse. The workers record the quantity of each item on the shipping document. The quantity actually received is checked with the quantity mentioned in the purchase order. Also it is checked that no goods are received in damaged condition. If everything is fine, then Goods Receipt Note (GRN) is issued.

PAYMENT OF A/P:

When goods are received, bill is sent to the accounts payable or accounting department, which then creates a liability in the books of accounts. The bill helps in tracing the quantity of goods received. The department checks that the actual rate quoted by the vendor in the invoice matches with the rate quoted in the quotation given by the vendor. Also they check that the quantities are same in actual bill and Purchase order. If price, quantity, quality of goods are matched, then the department releases the payment to the vendor.


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