Learn about the parts of a purchase order and an invoice, what everything means, and how to calculate terms.

1. PURCHASE ORDER A form used by the buyer to make a purchase. The forms are called Purchase Order forms or PO’s. A PO, once sent, is a legal contract between the buyer and the supplier. Since it is a legal contract, the order can be purchased on credit and your company will be billed later.

2. PARTS OF A PURCHASE ORDER The purchase order usually has a letterhead at the top which includes the company’s name and perhaps the address and phone number. If the address of the company doing the ordering is not in the letterhead, an invoice and ship to line must be filled in. The vendor section is the name and address of the company from whom you are ordering. Every purchase order MUST have a PO number along with a date.

3. PARTS OF A PURCHASE ORDER Item number —the vendor’s catalog number that identifies the merchandise being ordered Quantity —the number of units that is being ordered Description —a word or two of telling what is being ordered Unit —how the item is packages and prices (Ea., Doz., Ream, etc.) Unit Cost —the price per unit Total —the extension, or result of multiplying the number of units by the cost per unit.

4. TOTALING A P.O. Since a purchase order (P.O.) is an order, it must be totaled and any applicable tax must also be added in. What is the sales tax rate if you buy something in your locale? How much of this is state tax and how much is local tax? NOTE: Shipping/handling charges are not normally added in on a P.O.

5. INVOICES Based on a purchase order, a supplier will fill the order, send the merchandise to you, and bill you with an INVOICE. Some companies send the invoice with the shipment; others mail it later.

6. PARTS OF AN INVOICE An invoice normally is a printed form with the name of the company and its address at the top. On the sold to lines are printed the name of the company doing the ordering. Each invoice has an INVOICE number and a date. Your original purchase order number is also printed under “Order Number.” The date shipped, which could be different from the date of the invoice, is printed. How it will be shipped is also indicated.

7. PARTS OF AN INVOICE F.O.B. means “free on board.” These are related to who pays for the shipping. There are 4 options: FOB destination—the title or ownership of the goods remain with the seller until the goods reach their destination. Sometimes you will see FOB and someone’s name. FOB shipping point—the buyer pays the shipping costs and is responsible for losses or damages occurring in transit. FOB factory freight prepaid—the goods become the buyer’s property and the seller pays for shipping FOB destination charges reversed—the merchandise becomes the buyer’s when goods are received; buyer pays for shipping. If goods are lost or damaged in transit, the seller pays.

8. PARTS OF AN INVOICE Dating Terms state when a bill must be paid and the discount (if any) permitted for paying early. An invoice with terms of 2/10, n/30 means that if the invoice is paid within 10 days of the date of the invoice, the buyer can deduct 2% from the total of the merchandise. Otherwise, the NET amount of the bill must be paid within 30 days Example: Suppose your order dated 1/5/02 is exactly $100, and the terms are 3/15, n/30. You pay the invoice on 1/18/02. How much will you send them? Suppose you paid it on 1/21/02. How much would you pay them? You may also see terms like 2/10, 1/30, N/60. What does this mean?

9. PARTS OF AN INVOICE Notice that the some of the parts of an invoice are very much like the parts of a purchase order. Item number —this is the same number you put on your purchase order; it is the catalog number Quantity —the number of units ordered Description —a 1- or 2-word description of what is being ordered Unit —how the item is packages and prices (Ea., doz., ream, etc.) Unit cost —the price per unit Total —the extension obtained by multiplying the quantity times the unit cost.

10. PARTS OF AN INVOICE The bottom portion of an invoice is also like that of a purchase order; however, shipping charges have been added. Shipping charges are based on size of the package being shipping (if it is very large), weight of the package, and distance it is going to be shipped. Once a shipment is received along with an invoice, the buyer should carefully check the received merchandise against the original purchase order AND against what is actually in the package. Many companies place checkmarks on the invoice to indicate that each item has been checked.