Question

For a buyer, a purchase order is not the basis for recording a purchase and an account payable. True/False

Answer 1

TRUE

• Purchase order is generally prepared by buyer and sent to supplier
• It is an offer by buyer to purchase merchandise or other supplies from seller
• Purchase order is legally binding agreement which proves that buyer has agreed upon a certain quantity at given rates
• However, to record it as a purchase it must pass through a legal process. which includes invoice.
• After delivery is made or along with delivery of goods invoice is issued by supplier to buyer.
• Invoice is the source document for recording purchase and account payable
• when invoice is received inventory is debited and account payable is credited.
• Account payable is a controlling account found in general ledger.
• For a buyer, a purchase order is not the basis for recording a purchase and an account payable.