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blanket purchase order or blanket order

A long-term commitment made to a particular supplier to purchase specified items at predetermined prices over a set period, typically for a year. This arrangement streamlines the purchasing process, often by allowing for multiple releases against a single order and commonly securing volume discounts.

debit memo

A formal document issued by a buyer to a supplier to reduce the amount owed for goods or services. This reduction can be due to reasons such as returning merchandise, receiving a price allowance for damaged or defective goods, or correcting billing errors.

disbursement voucher

A document generated within the accounts payable system that consolidates information for supplier payment. It identifies the supplier, lists all outstanding invoices that are due for payment, and clearly indicates the net amount to be paid after accounting for any applicable purchase discounts, returns, or allowances.

economic order quantity (EOQ)

The optimal order size that aims to minimize the total inventory costs, which include the expenses associated with placing orders (ordering costs), holding inventory in storage (carrying costs), and the costs incurred from running out of stock (stockout costs, such as lost sales or production delays). The EOQ model helps businesses determine the most efficient quantity to order at a time to achieve this cost minimization.

evaluated receipt settlement

An efficient, 'invoiceless' method for processing accounts payable where payment is authorized based on a two-way match between the purchase order and the receiving report, eliminating the need for a separate supplier invoice. This streamlines the payment process and reduces potential discrepancies by simplifying the verification steps.

expenditure cycle

The major business cycle that encompasses all activities and data processing operations involved in the acquisition of raw materials, supplies, and other goods and services, and the subsequent payment for these items in exchange for cash or a future promise to pay cash. Key activities include requesting goods, ordering, receiving, and cash disbursements.

imprest fund

A petty cash fund or other cash account characterized by two main features: (1) it is established at a fixed, predetermined amount (e.g., 100); and (2) every disbursement from the fund requires a supporting voucher. The sum of the remaining cash and all disbursed vouchers must always collectively equal the initial fixed fund balance, ensuring accountability.

just-in-time inventory system (JIT)

An inventory management strategy that aims to minimize or completely eliminate inventory holding costs and waste by acquiring raw materials and producing goods only when they are needed for actual demand, rather than based on sales forecasts. This system relies on efficient coordination with suppliers and precise production schedules.

kickbacks

Unethical or illegal payments, gifts, or favors provided by suppliers to purchasing agents with the illicit intention of influencing their decisions regarding supplier selection, thereby compromising fair and objective procurement practices. Such actions are typically considered a form of bribery.

materials requirements planning (MRP)

A production planning and inventory control system used to manage inventory for dependent demand items (components used in a larger product). MRP seeks to optimize inventory levels by meticulously scheduling the timing and quantity of purchases and production to meet forecasted demand for finished goods, thereby reducing excess inventory and ensuring materials are available precisely when needed.

nonvoucher system

A method of managing accounts payable where individual approved supplier invoices are directly posted to their respective supplier records in the accounts payable subsidiary ledger. These invoices are then maintained in an 'open invoice' file until payment. This system differs from a voucher system as it does not involve the creation of a consolidated disbursement voucher for payments.

procurement card

A corporate credit card issued to employees, typically for making small-value or routine purchases directly from pre-approved suppliers for specific categories of items. These cards help streamline the purchasing process for low-cost goods and services while providing management with transaction data for control and monitoring.

purchase order

A legally binding document issued by a buyer to a supplier, formally requesting the sale and delivery of specified products or services at predetermined quantities, prices, and terms. It includes details such as item numbers, descriptions, quantities, and delivery instructions. Once accepted by the supplier, it becomes a binding contract.

Purchase Requisition

An internal document or electronic form, created by a department or user, to formally request the purchasing department to acquire specific goods or services. It typically specifies details such as the requisitioner's identity, desired delivery location and date, item descriptions, quantities, estimated prices, and may suggest a preferred supplier.

receiving report

A formal document prepared by the receiving department upon arrival of goods, detailing the contents of a delivery. It records crucial information such as the date received, the shipper, the supplier, and the exact quantity and condition of items received. This report is vital for verifying that the goods match the purchase order and for authorizing payment.

reorder point

A predetermined minimum inventory level for a specific item, which when reached, triggers the automatic initiation of a new purchase order or production order to replenish stock. Its purpose is to ensure that inventory does not fall below a critical level, thereby preventing stockouts and disruptions in operations.

vendor-managed inventory (VMI)

An inventory management strategy where the supplier assumes primary responsibility for managing and replenishing a customer's inventory levels. Utilizing technologies like Electronic Data Interchange (EDI), the supplier gains access to the customer's sales and inventory data (e.g., from point-of-sale systems) to monitor stock levels and automatically initiate replenishment orders when products fall to agreed-upon minimums. This collaborative approach enhances supply chain efficiency and reduces customer-side inventory management burdens.

voucher package

A comprehensive collection of documents assembled to provide authorization for making a payment to a supplier. Typically, it includes the purchase order (which authorizes the purchase), the receiving report (confirming receipt of goods), and the supplier invoice (requesting payment). This 'three-way match' ensures that only valid and accurate payments are made.

voucher system

A structured method for managing accounts payable where a separate disbursement voucher is created for each payment, rather than posting individual invoices directly to supplier ledger accounts. This voucher consolidates all relevant payment information, including the supplier's identity, a list of outstanding invoices, and the net amount due after any discounts or allowances. This system centralizes payment authorization and simplifies tracking of cash disbursements, often used in contrast to a nonvoucher system.