A purchase order, shortened to PO, is a commercial document a buyer issues to a seller naming the goods or services wanted, the quantity, the agreed unit price, the delivery date and the terms of the purchase. It goes out before the seller has accepted or performed, which makes it an offer to buy rather than a bill, and it becomes a binding contract when the seller accepts it. In a commercial buyer’s books, issuing one posts nothing to the general ledger.
What Is on a Purchase Order
The identifying fields come first: a purchase order number, the date of issue, the buyer’s name and billing address, and the supplier’s name and address. Then one line per item, each with a description, the quantity, the agreed unit price and the extended amount. After those come the ship-to address, the required delivery date, the payment terms, the delivery term such as FOB destination, and the approval of whoever authorized the spend.
The law asks for far less, and it asks it only of goods. Article 2 of the Uniform Commercial Code applies to transactions in goods (UCC 2-102), so an order for services alone sits outside its reach.
A contract for the sale of goods for the price of $500 or more is not enforceable without some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought, and it is not enforceable beyond the quantity of goods shown in that writing, though the writing is not insufficient because it omits or incorrectly states a term agreed upon (UCC 2-201(1)). Quantity is the one term the writing has to carry. That requirement carries exceptions of its own, among them goods for which payment has been made and accepted or which have been received and accepted (UCC 2-201(3)).
When a Purchase Order Becomes Binding
The code treats the order as an offer, not as an agreement. Unless the language or the circumstances unambiguously indicate otherwise, an order or other offer to buy goods for prompt or current shipment is construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, though a shipment of non-conforming goods is not an acceptance if the seller seasonably notifies the buyer that it is offered only as an accommodation (UCC 2-206(1)(b)). An order that is not for prompt or current shipment falls under the general rule, which construes an offer as inviting acceptance in any manner and by any medium reasonable in the circumstances (UCC 2-206(1)(a)).
A definite and seasonable expression of acceptance operates as an acceptance even though it states terms additional to or different from those offered, unless acceptance is expressly made conditional on assent to those terms (UCC 2-207(1)). Between merchants those additional terms become part of the contract unless the offer expressly limits acceptance to its own terms, they materially alter it, or objection is given within a reasonable time (UCC 2-207(2)). That last subsection is why a buyer’s order form carries a line limiting acceptance to the terms of the order. States enact their own version of the code, so the operative text is your client’s state law.
A Purchase Order Is Not a Journal Entry
In a commercial buyer’s books it creates no liability, no expense and no entry. Neither side has performed, so the payable arrives only when the goods or services are received and the supplier’s bill is keyed against them, which is where accounts payable begins, on the timing test set out in incurred.
What the order creates instead is a commitment against a budget, which is not a liability and does not belong in one. Federal award rules put that timing in a line: financial obligations means orders placed for property and services, contracts and subawards made, and similar transactions that require payment by a recipient or subrecipient under a Federal award (2 CFR 200.1). Placing the order is the event there, not receiving the goods, and those rules bind federal award recipients rather than a private firm. Where that commitment sits inside a full buying cycle is set out in the procure to pay process.
Purchase Order Versus Invoice
The buyer writes the order before any claim to money exists; the supplier writes the invoice as the demand for payment after performing. The order is then what the invoice is tested against, as one leg of 3-way matching in accounts payable, and the price actually paid measured against a standard cost set in advance is a separate measurement, worked through in purchase price variance.
Common Questions
The buyer. Inside a business the request usually starts as a requisition raised by whoever needs the item and approved by someone with authority to commit that amount. The supplier never writes it.
Standard, planned, blanket and contract purchase orders. The four are a naming convention rather than a legal classification, and what separates them is how much is fixed when the order is issued. A standard order fixes item, quantity, price and delivery date. A planned order leaves the delivery schedule for later. A blanket order fixes terms for repeat buying, with quantities released against it as they are needed, which federal buying calls a blanket purchase agreement, a simplified method of filling anticipated repetitive needs for supplies or services (Federal Acquisition Regulation, 13.303-1, General). A contract order fixes terms with no quantities committed.
Accountably places trained offshore accountants inside US CPA and EA firms, and a firm can put a block of its own payables work through a trial task before any client file depends on it.
