Purchase of Productive Materials:

Learning Objective:

1. Explain the procedure of purchasing productive materials
   The actual purchase of all materials is usually made by the purchasing department headed by a general purchasing agent. In some small and medium size companies, however, department heads or supervisors have authority to purchase materials as the need arises. In any case, systematic procedures should be in writing in order to fix responsibility and to provide full information regarding the ultimate use of materials ordered and received. The purchasing department should receive purchase requisitions for materials, supplies, and equipment; keep informed concerning sources of supply, prices, and shipping and delivery schedules; prepare and place  purchase orders; and arranging for adequate and systematic reports between the purchasing, the receiving, and the accounting departments. An additional function of the purchasing department in many enterprises is to verify and approve for payments all invoices received in response to purchase orders placed by the department. This procedure has the advantage of centralizing the verification and approval of invoices in the department that originates the purchases and that has complete information concerning items and quantities ordered, prices, terms, shipping instructions, and other conditions and details of the purchases. However, invoice verification and approval by the purchasing department may violate sound procedures and principles of internal control, particularly if the same individual prepares an order and later approves the invoice. Consequently, invoice audit and approval in many instances have been made a function of the accounting department, which receives a copy of the purchase order. The purchase order carries all necessary information regarding prices, discount agreement, and delivery stipulations, as well as the number of the account to which the order is to be charged. Furthermore, the centralization of invoice approval in the accounting department helps avoid delaying payments beyond the discount period.