What is a Purchase Order?

Definition: A purchase order is a source document used by the purchasing department to place an order with a vendor or supplier. In other words, this is the contract that a buyer drafts to purchase goods from a seller.

What Does Purchase Order Mean?

A purchase order typically lists the date of the order, FOB shipping information, shipping date, discount terms, name of the buyer and seller, description of the goods, model numbers, price, quantity, and PO number. At the very bottom of every order form there is a signature line for the authorized manager to sign. So basically, an order includes everything about the transaction and what the buyer expects. The seller can choose to fulfill this order or reject the order.

Creating an order is only one step in the process of ordering goods from suppliers using a voucher system. In order to prevent fraudulent spending and improper orders, most companies initiate a voucher system that provides checks and balances in the purchasing process. Here are the simple steps in this system.


First, a department that needs to order materials creates a purchase requisition form. This form notifies the purchasing department that supplies are needed. The purchasing department can approve, alter, or deny the request from the other department. If the order is approved, the purchasing department will create an order.

This order form is sent to the vendor notifying them that the buyer wishes to purchase goods. If the vendor accepts the order, it produces and delivers the goods with an invoice. The receiving department unpacks the goods and delivers the receiving report to the accounting department who already has the invoice and purchase order. When all of these documents agree, the accounting department can issue an invoice approval notice to the cashier indicating that a payment can be made to the vendor.

I know. This seems like a long tedious process. It is, but it is put in place to prevent fraud purchases and protect the company assets from improper ordering.

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