What is a Purchase?

A purchase involves the acquisition of goods or services in exchange for a payment of some kind. The payment is usually in cash or credit (to be paid later). A purchase may also be part of a barter transaction where different non-cash assets are exchanged, or it may be in exchange for the assumption of a liability. Purchasing is a crucial part of the manufacturing process, where raw materials must be acquired and converted into finished goods.

Purchase Documentation

When a buyer makes a purchase, it issues a purchase order to the seller, on which is stated the items to be purchased, the quantity to be purchased, and the price to be paid, along with any delivery requirements. When the seller receives this document, it transfers the purchase order information onto a sales order, which is the internal document that it uses to process the order.

Example of a Purchase

As an example of a purchase, Shoes Unlimited places an order with a foreign supplier to sell it 10,000 pairs of sneakers. This involves the issuance of a purchase order, which is a legal commitment by the company to acquire the indicated type and quantity of shoes. Once the shoes are delivered, the accounting department wires funds to the supplier in compensation for the delivered goods.