Purchase Order (PO) in Organizations: A Crucial Document for Expenditures

What document is prepared for each expenditure in most medium and large organizations?

A. Requisition Form

B. Purchase Order (PO)

C. Invoice

D. Budget Report

Answer:

B. Purchase Order (PO)

In most medium and large organizations, the authorization form prepared for each expenditure is commonly known as a Purchase Order (PO). A PO is a formal document issued by a buyer committing to pay the seller for the sale of specific products or services to be delivered in the future.

The creation of a PO starts with a requisition process where the need for a product or service is identified. After the requisition is approved, a PO is created and sent to the vendor, outlining the types and quantities of items to be purchased, agreed upon prices, and payment terms. This serves as a crucial tool within an organization's budgetary control system.

Just as receipts reflect anticipated revenue, expenditures represent planned spending within an organization or the federal government's fiscal year budget. The budget process for the federal government, as in the example of the President's budget, involves making policy goals and priorities for the next fiscal year with an estimation of both receipts and expenditures.