Question

The purchase order is the source document to make an entry into the accounting records. It indicates item description, quantity, and price. Who prepares the purchase order and who approves it?

1) The inventory control department prepares the purchase order and the end-user department approves it.
2) The end-user department prepares the purchase order and the inventory control department approves it.
3) The accounting department prepares the purchase order and the end-user department approves it.
4) The end-user department prepares the purchase order and the accounting department approves it.

Answer 1

The end-user department typically prepares the purchase order because they know what is required for their operations. It is then approved by another department such as inventory control or accounting, for control purposes. The most common practice is for the end-user department to prepare it and the inventory control department to approve it.

Step-by-step explanation:

When it comes to the preparation and approval of a purchase order, this process typically involves several departments within an organization to ensure proper checks and balances. A purchase order is a document issued by a buyer to a seller, indicating the types, quantities, and agreed prices for products or services. It serves as a contract for the purchase of the specified goods.

In general, the end-user department, which requires the goods or services, prepares the purchase order. This is because the end-user is most aware of what is needed to support their department's objectives. Once the purchase order is prepared, detailing the item descriptions, quantities, and prices, it generally requires approval from a different department. This is to ensure that the procurement is within the budget and follows the organization's purchasing policies.

Depending on the organization's size and structure, the inventory control department or the accounting department may be responsible for approving the purchase order. The inventory control department may be involved in approving purchase orders as it manages stock levels and reorder points to maintain the inventory at optimum levels. On the other hand, the accounting department often takes part in the approval process to ensure that the purchase aligns with the financial planning and control mechanisms of the organization.

Based on these typical roles, the correct answer to who prepares and approves the purchase order is:

1. The inventory control department prepares the purchase order, and the end-user department approves it.
2. The end-user department prepares the purchase order, and the inventory control department approves it.
3. The accounting department prepares the purchase order, and the end-user department approves it.
4. The end-user department prepares the purchase order, and the accounting department approves it.

Given these options, number 2 seems to be the most typical and logical choice: The end-user department prepares the purchase order, and the inventory control department approves it.