Purchasing & Stock Handling

Purchase Order A legal contract between the buyer and supplier. …See Excel Purchase Order

Invoices Once an order has been completed, the supplier will send an invoice. Sometimes the invoice is sent with the merchandise. Sometimes the invoice is mailed directly to the accounting department. (Accounts Payable)

Shipping Terms FOB Destination – The title or ownership of the goods remains with the seller until the goods reach their destination. The seller pays transportation charges and is responsible for the condtion of the goods until they arrive.

FOB Shipping Point – The buyer pays the shipping costs and is responsible for losses for damages that occur in transit. FOB Factory freight prepaid – The goods become the buyer’s property. However, the seller pays for shipping.

FOB Destination Charges Reversed – The merchandise becomes the buyer’s when goods are received. The buyer pays for transportation, but if the goods are lost or damaged in transit, the buyer’s investment is protected.

Dating Terms Dating terms state when a bill must be paid and the discount permitted for paying early. N30 N60 NT N15 1/10, N30 1/15, N60 .5/10, NT

Receiving Merchandise Once the order has been placed and then shipped, the receiving company (buyer) must go through specific procedures to receive the merchandise.

Checking is the process of going through the goods upon receipt to make sure they arrived undamaged and that the merchandise ordered was the merchandise received.

Methods for Checking Merchandise Blind check method Requires the receiver to write the description of the merchandise, count the quantities received, and then list them on a blank form or dummy invoice. The list or dummy invoice is then compared to the actual invoice after the blind check is made. This method is used when the merchandise needs to be moved quickly to the sales floor and the actual invoice has not yet been received.

Direct check method The merchandise is checked directly against the actual invoice or purchase order. This procedure is faster than the blind check method, but errors may not be found if the invoice itself is incorrect. Some checkers may not check the total # of items and may just assume it is correct instead of taking an actual count

Spot check method A random check of one carton in a shipment (such as one out of every 20) The carton is checked for quantity, and then one product in the carton is inspected for quality. If one carton is correct, all others are assumed to be correct as well

Quality check method This is done to inspect the workmanship and general characteristics of the received merchandise.

Inventory Refers to an amount of goods stored. Includes works in process, raw materials, purchased components.

Inventory Management The process of buying and storing products for sale while controlling costs for ordering, shipping, handling, and storage.

Problems with “too high” inventories Uses valuable storage space, increase personnel costs, higher insurance premiums, and may lead to increased interest expenses for a business.

“Too Low” inventory problems Lose money and reduced profits when stock in managed poorly, having the wrong merchandise in stock, or holding too many slow-selling items or too few fast-selling ones

L.I.F.O (Last In..First Out) In LIFO accounting, a historical method of recording the value of inventory, a firm records the last units purchased as the first units sold. Helps them to maintain costs at a current value. Used for accounting purposes mainly.

F.I.F.O. (First In..First Out) Method for inventory management in which the oldest product produced is the first to be sold.

J.I.T. (Just-in-time inventory) An arrangement in which suppliers deliver parts and raw materials just before they are needed for production. Orders are placed when parts and supplies run low. Plants keep only small stocks on hand to avoid tying up money and inventory space.

Inventory Systems Perpetual Inventory Tracks the number of items in inventory on a constant basis. Tracks/counts inventory of all purchases and returns of merchandise, sales and sales returns, sales allowances, and transfers to other stores and departments. Allows businesses to keep track of sales as they occur.

Physical Inventory Stock is visually inspected or actually counted to determine the quantity on hand. Can be conducted periodically or on a constant basis.

Which method? Based on the information above, if this were your business, what methods would you use to track inventory to ensure accuracy?