Question

List the differences between purchase orders and invoices.

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Purchase orders is a document created by a customer at the very beginning of the shopping process. It contains information about the desired product:

  • Barcode or product number which uniquely identifies the product - Quantity of desired product
  • Unit
  • Unit cost
  • Total bill amount for all products from that one order.

This type of document expresses the customer's desire to buy products and gives seller concrete information about desired products. Such order is sent to the seller who has to check the availability of products before approving the order. The seller needs to check the product supply, price, etc. Only when the seller concludes that they are able to realize the order, they can confirm it, and it becomes a legally binding document.

Invoice is a document created by the seller as a final step of the selling process. It consists of all elements that were beforehand mentioned in the purchase order. It needs to show a PO number to which it refers. Additional information it contains:

  • Invoice must separately show taxes and fees if the seller is in the business in which they have to pay taxes and/or fees.
  • Payment method: check, cash, credit card.
  • Total price displayed in the invoice has to be identical to the one that was defined and agreed upon during the approval of purchase order.
  • Dating terms that are used to specifically define the date by which customer needs to settle their debt towards the seller in the amount that is specified on the invoice. If there are any shipping costs that customer needs to pay for, they also have to be specified in the invoice.

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Prepare journal entries to record the following merchandising transactions of Cabela’s, which uses the perpetual inventory system and the gross method.

July 1 Purchased merchandise from Boden Company for $6,000 under credit terms of 1 / 15, n / 30, FOB shipping point, invoice dated July 1.2Sold merchandise to Creek Co. for $900 under credit terms of 2 / 10, n / 60, FOB shipping point, invoice dated July 2. The merchandise had cost $500.3Paid $125 cash for freight charges on the purchase of July 1.8Sold merchandise that had cost $1,300 for $1,700 cash.9Purchased merchandise from Leight Co. for $2,200 under credit terms of 2 / 15, n / 60, FOB destination, invoice dated July 9.11Received a $200 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.12Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.16Paid the balance due to Boden Company within the discount period.19Sold merchandise that cost $800 to Art Co. for $1,200 under credit terms of 2 / 15, n / 60, FOB shipping point, invoice dated July 19.21Issued a $100 credit memorandum to Art Co. for an allowance on goods sold on July 19.24Paid Leight Co. the balance due, net of discount.30Received the balance due from Art Co. for the invoice dated July 19, net of discount31Sold merchandise that cost $4,800 to Creek Co. for $7,000 under credit terms of 2 / 10, n / 60, FOB shipping point, invoice dated July 31.\begin{matrix} \text{July 1 } & \text{Purchased merchandise from Boden Company for \$6,000 under credit terms of 1 / 15, n / 30, FOB shipping point, invoice dated July 1.}\\ \text{2} & \text{Sold merchandise to Creek Co. for \$900 under credit terms of 2 / 10, n / 60, FOB shipping point, invoice dated July 2. The merchandise had cost \$500.}\\ \text{3} & \text{Paid \$125 cash for freight charges on the purchase of July 1.}\\ \text{8} & \text{Sold merchandise that had cost \$1,300 for \$1,700 cash.}\\ \text{9} & \text{Purchased merchandise from Leight Co. for \$2,200 under credit terms of 2 / 15, n / 60, FOB destination, invoice dated July 9.}\\ \text{11} & \text{Received a \$200 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.}\\ \text{12} & \text{Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.}\\ \text{16} & \text{Paid the balance due to Boden Company within the discount period.}\\ \text{19} & \text{Sold merchandise that cost \$800 to Art Co. for \$1,200 under credit terms of 2 / 15, n / 60, FOB shipping point, invoice dated July 19.}\\ \text{21} & \text{Issued a \$100 credit memorandum to Art Co. for an allowance on goods sold on July 19.}\\ \text{24} & \text{Paid Leight Co. the balance due, net of discount.}\\ \text{30} & \text{Received the balance due from Art Co. for the invoice dated July 19, net of discount}\\ \text{31} & \text{Sold merchandise that cost \$4,800 to Creek Co. for \$7,000 under credit terms of 2 / 10, n / 60, FOB shipping point, invoice dated July 31.}\\ \end{matrix}