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What is Purchase Order in accounting?
A Purchase Order (PO) is a document sent by a buyer to a seller that details the buyer’s expectations from the purchase. It includes the description and quantity of goods, prices, order placement, and shipping dates, any discount terms, Freight on Board (FOB) information, and a signature of the approving authority. This legally binding sourcing document shows the purchaser’s commitment to buy the detailed goods and services.
Procurement teams issue Purchase Orders after a Purchase Requisition (PR) is approved. As POs are made, they are internally routed for approval again, and then they await acknowledgment and acceptance by the vendor. The supplier can accept or reject the PO, and POs are legally valid only if the vendor approves them. AP personnel use the PO later on in the three-way matching to compare it to the Goods Receipt Note and the invoice. They only dispatch the payments after ensuring consistency. This entire workflow is automatic if the organization is using Purchase Order Software.