Process of Purchasing and Receiving Goods [Cost Accounting Notes BCOM]

Process of Purchasing and Receiving Goods, Material Costing, Cost Accounting Notes BCOM

Process of purchasing and receiving goods

Purchase procedure differs from business to business, but all of them follow a general pattern or procedure. There should be proper Purchase Procedure to ensure that right type of material is purchased at right time, in right quantity, at right prices and at right place. All these things require a well-defined procedure of purchasing. The steps in Purchase Procedure are explained below.

Purchase Requisition: A form known as ‘Purchase Requisition’ is commonly used as a format requesting the purchase department to purchase the required material. Normally the purchase requisition is issued by the Stores Department when the quantity of the concerned material reaches the minimum level. Only in the cases of materials, which are not kept in the stores on regular basis, the requisition is issued by the concerned department. Purchase requisition has information like the quantity required, the expected date of receipt, the department in which the material is required, description of material etc. Copies of the purchase requisition are sent to the Accounts department and the concerned department who is in need of the material.

Purchase Order: After the receipt of purchase requisition, the purchase department places an order with a supplier, offering to buy certain material at stated price and terms. However before issuing the purchase order, quotations may be invited from various suppliers for arriving at the best deal. The purchase department usually keeps a list of suppliers from whom the quotations are invited. The quotations received are examined on various parameters like price, delivery period, terms and conditions, quality of material etc. After this, purchase order is issued to the selected supplier. It should be remembered that a purchase order is a legal document and it results into a contract between the company and the supplier. Hence the terms and conditions in the purchase order should be drafted clearly without any ambiguity.

Receiving the Materials: The receiving department performs the function of unloading and unpacking materials which are received by an organization. This will need an inspection report which is sometimes incorporated in the receiving report, indicating the items accepted and rejected with reasons. Copies of the receiving report along with the inspection report are sent to various departments like purchase, stores, concerned department, accounts department and costing department.

Approval of invoice: Approval of invoice indicates that goods according to the purchase order have been received and payments can be made for the same. However, if the goods are not according to the quality ordered or are in excess of the quantity specified or are damaged or are of inferior quality, payment is withheld.

Making the Payment: After the invoice is approved the payment is made to the supplier. The purchase procedure is completed with the payment released.

Also Read: Important Questions for Upcoming Exam

Unit – 2: Material Control – Purchase and Issue (Part A)

(These Questions are subject to modification, if necesary. Download DTS Application for complete notes)

Q. What do you mean by Inventory Control (2017SN)? What are its objectives (Need)? Explain the essentials of Material Control.             2014, 2015SN

Q. What are various techniques of Inventory Control? Explain them in detail.    2015SN, 2018

Q. Explain various methods of pricing of material issue together with their respective merits and demerits. 2013, 2015SN

Q. What do you mean by Perpetual Inventory system (2013SN)? What are its essential features? Explain its importance in material control.                2016

Q. How Perpetual Inventory System differs from ABC analysis? State the advantages ofABC analysis.  2017

Q. Explain in brief the process of purchasing and receiving goods.

Q. “Store ledgers are essential to an efficient costing system”. Considering this statement highlight the uses and values of store ledgers. Distinguish between Store ledger and Bin Card (2015SN).

Q. Write Short notes on:

Ø  EOQ and its calculation                         2010, 2015

Ø  ABC analysis differs from VED analysis          2013, 2014, 2016SN, 2019SN

Ø  Perpetual (2018SN) and Periodical Inventory System

Ø Materials Losses, Scraps, Defectives and Spoilage

Q. Practical Questions:

a)      Calculation of EOQ with offer comparison, 2012

b)      Various levels of material – Reorder level, maximum level, minimum stock level.    2014

c)       Pricing of material issue – LIFO, FIFO, Weighted average and Simple average (focus of return and loss of goods).         2019