Final answer:
A purchase is recognized when the products are received from the supplier and accepted. This is when the company takes control of the inventory and has the obligation to pay the supplier, aligning with accounting principles like GAAP or IFRS.
Step-by-step explanation:
When a company records both purchase orders and purchases, the recognition of the purchase typically follows accounting principles and standards, such as the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). In this context, a purchase is recognized not when a purchase order is issued or received by the supplier, but when:
This point of acceptance marks when the company takes control of the inventory and is obliged to pay the supplier. Recognizing a purchase at this stage ensures that the company's financial statements reflect its current assets and liabilities accurately. The moment of reception and acceptance is critical because it signifies that the company now has both the risks and rewards associated with the ownership of the products. Therefore, before this point, the company has a commitment to buy but does not have the asset itself nor the obligation to pay for it.
Choices A and B are premature in recognizing the purchase since a purchase order is simply an intent to buy, not a formal acquisition of goods. Choice D, which suggests recognizing the purchase when products are sold, confuses the purchase with the sales process. In accounting, these are two distinctly separate events where the purchase must be recognized upon receipt, and the sales are recognized when the customer takes delivery of the sold goods.