Documents Required for Purchasing Stores Routine | Cost Accounting

The normal process of purchasing, storing, control and issue of materials consists of the following documents:- 1. Bill of Materials 2. Purchase Requisition 3. Purchase Order 4. Material Inspection Note 5. Goods Received Note (GRN) 5. Goods Received Note (GRN) 6. Stores Requisition Note 7. Material Transfer Note 8. Material Return Note 9. Bin Card 10. Stores Ledger.

Document # 1. Bill of Materials:

Bill of Materials is a comprehensive list of materials, with specifications, material codes and quantity of each material required for a particular job, process or production unit. It will also include the details of substitute materials. It is prepared by the engineering or planning department for submission of quotation and after the receipt of work order. It is a method of documenting materials required for execution of the specified job work.

ADVERTISEMENTS:

Bill of Material acts as an authorization to the Stores Department in procuring the materials and the concerned department in material requisition from the stores. It is an advance intimation to the concerned departments of the job, work order to be completed.

It is circulated to:

(a) Purchase Department,

(b) Stores Department,

(c) Cost Accounts Department, and

(d) Product Department.

Format of Bills of Material

Advantages:

(a) It acts as a guide in planning the execution of job, process or product units by documenting all materials required for that specified work.

(b) It is a base for action to be initiated by the Stores Department in placing the purchase requisition with the purchase department.

(c) The information mentioned in the bill of materials act as a standard with which any deviation can be detected and remedial measures are taken if deviations take places.

ADVERTISEMENTS:

(d) It is a good control measure on material cost.

(e) The material cost to be charged to a particular unit, job or process can easily be determined beforehand.

(f) It helps in submission of tenders and quotations.

(g) It is a planning exercise for the proposed production or work.

ADVERTISEMENTS:

(h) It serves as an advance intimation to stores department about the raw material requirement.

Document # 2. Purchase Requisition:

CIMA defines Purchase Requisition as “an internal instruction to a buying office to purchase goods or services. It states their quantity and description and elicits a purchase order”.

The manager in-charge of Purchase Department should obtain requisition from the Stores in- charge, departmental head or similar person requiring goods before placing orders on suppliers. If the present stock run down to the reorder level, then the stores department send a Purchase Requisition to Purchase Department, authorizing the department to order further stock.

The specimen of Purchase Requisition is given below:

Purchase Requisition Format

Document # 3. Purchase Order:

If the Purchase Requisition received by the Purchasing Department is in order then it will call for tenders or quotations from the suppliers of materials. It will send enquiries to prospective suppliers giving details of requirement and requesting details of available materials, prices, terms and delivery etc. Quotations will then be compared and will place order with those suppliers who will provide the necessary goods at competitive prices.

The number of copies of routing of Purchase Orders depends on the procedure followed in the organization. Normally, the copies of the purchase orders will be sent to the Supplier, Department originating Purchase Requisition, Inspection Department, and Accounting Department.

The specimen of the Purchase Order is given below:

Purchase Order Format

Document # 4. Material Inspection Note:

When materials are delivered, a supplier’s carrier will usually provide a document called ‘delivery note’ or ‘delivery advice’ to confirm the details of materials delivered. When materials are unloaded, the warehouse staff check the material unloaded with the delivery note. Then the warehouse staff prepares a Materials Receipt Note, a copy of which is given to the supplier’s carrier as a proof of delivery.

After receiving the materials the Inspection Department thoroughly inspects whether the quality of material is in accordance with the purchase order and the quality of material received and it prepares a note called ‘material inspection note’, copies of which are sent to the supplier and stores department.

A specimen of material inspection note is given below:

Material Inspection Note Format

Document # 5. Goods Received Note (GRN):

Once the inspection is completed, GRN is prepared by the stores department, and copies of GRN is sent to the purchasing department, costing department, accounts department and production department, which initiated purchase requisition.

A specimen of goods received note is given below:

Goods Received Note Format

After receipt of GRN from the Stores Department and invoice from the supplier, the accounts department will check with the purchase order and take necessary steps for making payment to the supplier.

Document # 6. Stores Requisition Note:

It is also called ‘materials requisition note’. When Production or other departments requires material from the stores it raises a requisition, which is an order on the stores for the material required for execution of the work order. This note is signed by the department in-charge of the concerned department. It is documents which authorize the issue of a specified quantity of materials.

It will include the cost centre or job number for which the requisition is being made, a specimen stores requisition note is given below:

Store Requisition Note Format

Any person who requires materials from the stores must submit stores requisition note. The store keeper should only issue materials from stores against such a properly authorized requisition and this will be entered in the bin card and stores ledger. A copy of the requisition will be sent to the costing department for recording the cost or value of materials issued to the cost centre or job.

Document # 7. Material Transfer Note:

If materials are transferred from one department or job to another within the organization, then material transfer note should be raised. It is a record of the transfer of materials between stores, cost centres or cost units showing all data for making necessary accounting entries.

A specimen of ‘material transfer note’ is given below:

 

Material Transfer Note Format

Document # 8. Material Return Note:

If materials received from the stores are not of suitable quality or if there is surplus material remaining with the department, they are returned to stores with a note called ‘material return note’ evidencing return of material from department to stores.

Material Return Note Format

A copy of material return note is sent to the costing department for making necessary adjustments in accounts.

Document # 9. Bin Card:

A ‘bin card’ indicates the level of each particular item of stock at any point of time. It is attached to the concerned bin, rack or place where the raw material is stored. It records all the receipts of a particular item of materials and its issues. It gives all the basic information relating to physical movements. It is a record of receipts, issues and balance of the quantity of an item of stock handled by a store.

A specimen bin card is shown below:

Bin Card Format

Document # 10. Stores Ledger:

Stores department will maintain a record called ‘stores ledger’ in which a separate folio is kept for each individual item of stock. It records not only the quantity details of stock movements but also record the rates and values of stock movements.

With the information available in the stores ledger, it is easier to ascertain the value of any stock item at any point of time. The minimum, maximum and reorder levels of stock are also mentioned for taking action to replenish the stock position.

A specimen stores ledger account is given below:

 

Store Ledger Format

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