Although the details of a purchase procedure may differ from concern to concern, the important procedures in purchasing and receiving of materials are as follows; assuming that purchases are centralised: 1. Purchase Requisition 2. Selection of Suppliers 3. Purchase Order and Follow-Up 4. Receipt of Materials 5. Inspection and Testing of Materials 6. Return of Rejected Materials 7. Passing Invoices for Payment.

1. Purchase Requisition:

Purchases of materials are initiated through purchase requisitions. It is a formal request by the head of the department or other authorities to the purchase manager to purchase the specified materials.

Such requisitions are received from certain authorised persons as follows:

2. Selection of Suppliers:

When the purchasing department receives a duly authorised purchase requisition, a source of supply has to be selected. The purchase department generally maintains a list of suppliers for each type of material and selects a particular supplier after inviting tenders.


The important rule is to buy the best quality materials at the lowest possible price after giving due consideration to delivery dates and other terms of purchases. Purchase should be made from dependable sources of supply and ethical standards in dealing with suppliers should be maintained.

In many industries long term contracts are entered into with suppliers. For example – a car manufacturer may contract ahead for the supply of tyres and tubes for a year’s requirements at a time. Such an arrangement has the advantage of avoiding to keep large stocks if the continuity of supply can be relied upon.

Moreover, the supplier gets a regular customer and may offer favourable terms. Periodic withdrawals against the contract are made by raising a purchase order.

3. Purchase Order and Follow-Up:


When the supplier has been selected, the most common procedure is the preparation of a purchase order. The purchase order is the form used by purchasing department authorising the suppliers to supply the specified materials at a price and terms stated therein.

A purchase order should be carefully prepared as it forms a basis of legal contract between the parties concerned. For this reason, authority to sign purchase orders should also be restricted to selected responsible officials.

Large companies generally prepare five copies of the purchase order. The original is sent to the supplier. Second copy is retained by the purchase department for its own file and reference. Third copy is sent to the receiving department as advance intimation to expect the materials.

Fourth copy is sent to the cost accounting department for entry in the ordered column of the stores ledger account. Last copy is sent to the department requisitioning the material as an intimation of the order and expected date of receipt of materials.

4. Receipt of Materials:

All incoming material should be received by the receiving department. This department performs the functions of unpacking the goods received and verify their quantities and conditions. The quantity is checked against the purchase order copy and the supplier’s advice note which is normally received along with the goods.

Goods received note serves the following purposes:

1. It informs the store keeper or other requisitionist of the receipt of materials.

2. It notifies the accounting department that the materials have been received and that a voucher can be prepared.


3. When it includes columns of cost, it can serve as a source of entry in the stores ledger. Original copy of this goods received note is sent to the purchase department to be marked completed.

Second copy is sent to the store keeper. Third copy is sent to the accounting department for entry in the stores ledger and last copy is retained by the receiving department for its own file.

5. Inspection and Testing of Materials:

Goods received should be inspected for quantity to ensure that they comply with specifications stated on the purchase order. Where technical or laboratory inspection is necessary, the goods are passed to laboratory which will provide a report on the quality of goods.


An inspection report is prepared to show the results of the inspection. This report is either prepared separately or incorporated in the goods received note. In either case, the report is forwarded to the purchasing department.

6. Return of Rejected Materials:

Where materials received are damaged or are not in accordance with the specifications, these are usually returned to the supplier along with a debit note, informing him that his account has been debited with the value of materials concerned. When such a claim is accepted by the supplier, he signifies his acceptance by the issue of a credit note. The rejected materials may be returned to the supplier immediately or they may be held pending his instructions.

The debit note may be prepared’ by the purchase department on the basis of the inspection report. Original copy is sent to the supplier one copy is sent to accounts department for adjustment entry and one copy is retained for purchase department file.

7. Passing Invoices for Payment:

When the invoices are received by the purchasing department, the process of assembling the business paper concerned with each purchase and preparation of vouchers begins. Invoices are numbered serially and entered in the invoice register.

The following documents are assembled in support of the invoice:

(a) Purchase Order.

(b) Goods Received Note.


(c) Inspection Report.

(d) Debit/Credit Note.

After comparing these documents with the invoice, if it is found that the invoice is in order, the purchase manager will sign it and pass it to the accounts department for payment. All calculation are checked before a voucher authorising payment is prepared. All related documents like purchase order, goods received note, etc., are marked with the invoice number to preclude the passing of a possible duplicate invoice.