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Material Purchase Procedure and Documentation-1

The document outlines various documents used to manage material purchases and inventory, including purchase requisitions, purchase orders, delivery notes, goods received notes, purchase invoices, material requisition notes, and material transfer notes. It also describes two methods for accounting for inventory - the periodic inventory method which uses separate purchase and inventory accounts, and the perpetual inventory method which uses a single inventory account. Finally, it discusses inventory valuation methods including lower of cost or net realizable value, and methods for determining historical cost such as FIFO and weighted average cost.

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Abdul Rehman
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291 views

Material Purchase Procedure and Documentation-1

The document outlines various documents used to manage material purchases and inventory, including purchase requisitions, purchase orders, delivery notes, goods received notes, purchase invoices, material requisition notes, and material transfer notes. It also describes two methods for accounting for inventory - the periodic inventory method which uses separate purchase and inventory accounts, and the perpetual inventory method which uses a single inventory account. Finally, it discusses inventory valuation methods including lower of cost or net realizable value, and methods for determining historical cost such as FIFO and weighted average cost.

Uploaded by

Abdul Rehman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Material purchase procedure and doc.

ACCA/CA CMA BY TAHA POPATIA


Movement of a material in a business must be documented using following documents as appropriate:

• Purchase requisition: When inventory levels run low and stores department identifies the need to
reorder certain inventory, it produces a request on a piece of paper to purchase department to buy the
material. This request is called purchase requisition.
• Purchase order: Document sent from purchase department to supplier. Copies of the purchase order
must be sent to the accounts department and storekeeper.
• Delivery note: Supplier sends delivery note along with the goods. One copy is given to company and
another retained by supplier as evidence of delivery of goods.
• Goods received note: Stores department prepares goods received note. A copy is also sent to accounts
department.
• Purchase invoice: Received from supplier, asking for payment. The accounts department check the
details on the purchase invoice with purchase order and goods received note before making any
payment.
• Materials requisition note: Formal request from the user department to stores department for a
quantity of material they need.
• Materials return note: When materials are returned unused to stores department.
• Materials transfer note: When material issued to one department is excess and is transferred to another
department.

Accounting for inventory

Periodic inventory method

• Two accounts maintained 1. Purchase account and 2. Inventory account


• Year 1 Entries 1. Purchases debit Cash/Payable credit. At year end 2. Cost of sales debit Purchases credit.
3. Inventory debit cost of sales credit.
• Year 2 Entries 1. Purchases debit Cash/Payable credit. At year end 2. Cost of sales debit Purchases credit.
3. Cost of sales debit Inventory credit (for opening inventory) 4. Inventory debit Cost of sales credit (for
closing inventory).
• Year-end inventory values: inventory count.

Perpetual inventory method

• Single account to record all inventory movements.

Debit Inventory account (raw material) Credit


Balance b/d Issues
Purchases Balance c/d

Valuation of inventory

• Measured at lower of cost or Net Realizable Value (NRV). NRV = amount that can be obtained from
disposing of the inventory less any further costs that will be incurred to do so.
• Historical cost of inventory is usually measured by one of the following methods: 1. First in, first out
(FIFO) 2. Weighted Average cost (AVCO).

1|Page ARTT BUSINESS SCHOOL SIR TAHA POPATIA

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