Acounting for the non accountant - by a computer programmer

Sales Order Processing and Purchase Order Processing

The process of business to business sales

It goes sort of like this.

• The production department at Bloggs decides it is low on stock of widgets for making the WidgySprocketty Machines. So it sends an internal requisition to the procurement department. Procurement should really have noticed this without prompting. Anyway, Bloggs and Co. need to get more widgets. Bloggs' Procurement might telephone ABC and say 'how much for 1000 widgets?' ABC might fax back a quote.
• Bloggs' decides to go for it and faxes a Purchase Order to ABC ltd expressing a wish to buy some widgets. Bloggs enters the Purchase Order into their Purchase Order Processing System. As a purchase order against the supplier on the purchase ledger called ABC Ltd. The balances on the purchase ledger are not affected. The PO will have a unique number on it called a Purchase Order Number. ABC receive the Purchase Order, but they put it onto their Sales Order Processing system as a Sales Order against the customer Bloggs. This does not affect the Sales Ledger at this point. ABC might print a Sales Order Confirmation, and fax it back to Bloggs to check all the details are correct.. On one or any of the above bits of paper the delivery date may or may not have been agreed. Either verbally or on the confirmation ABC will give a Sales Order Number to Bloggs as a refernece.ABC Call it 'Our Ref'. The sales order will also show the original PO number from Bloggs, but ABC call that 'Your Ref'
• Anyhow, the next stage is ABC actually sends some widgets to Bloggs.
• The next piece of paper is the picking list. This is a list of all the bits of stock that must be found by the warehouseman, and plonked in the dispatch department.
• The dispatch department at ABC will package up the widgets and give them to a shipper to transport them to Bloggs. At this point ABC go into the SOP system and delivers some goods against the Sales order.
• The sales order may have several detail lines and the delivery ABC are making might be a whole or part shipment of one or more of those lines.
• As the actual stock going out the door does not have to bear any resemblance to the original sales order, a Delivery Note is printed by the SOP system at ABC indicating what the delivery is made up of. Stock movements are then made to change the stock figures to reflect the shipment. The delivery note has a unique Delivery note number on it, along with ABC's sales order number and Bloggs PO number
• The goods and the delivery note get sent to Bloggs.
• It arrives at the Goods in dept at Bloggs. The goods are then Booked in by doing a Goods Received. This means telling Bloggs POP system that certain parts of a PO have arrived. This will effect a stock movement and the printing of a Goods Received Note. This will have a unique GRN number on it, the Del Note number (from ABC), the PO number (Bloggs) and the SO number (ABC). The goods in chappie will then staple the GRN and the Del note together and send them up to Procurement. Procurement put them in a file and ignores them studiously.

Next - the money.

If all that sounds crazy enough, it is nowhere near the end of the tale. Bloggs have got their widgets and have not complained, and ABC have sent out the widgets. ABC would now like some money.

• The sales ledger clerk at ABC looks for Sales orders that have been delivered, and invoices the sales orders. This will print off the Sales Invoice and post the invoice into the Sales Ledger, increasing the customer balance on Bloggs and Co. customer account. The sales invoice will have a unique sales invoice number on it. It will also have a few other things on it such as Tax Point Date and so forth.
• The piece of paper is then sent to Bloggs & Co. (FOA Accounts Payable.) The piece of paper then falls on the desk of a Purchase Invoice Clerk . She will then enter the detail printed on the invoice (which Bloggs are now calling a Purchase Invoice) into a Purchase Invoice Register. The sales invoice number will be know by bloggs as the purchase invoice number.
• Inside the PIR the invoice lines are matched to purchase orders, which generally consists for several people frowning at the GRNs, the Del notes, the purchase invoice, the order confirmation and the quote, making a few phone calls, shouting a bit and so forth.
• Eventually the PIR makes an entry into the Purchase Ledger at Bloggs called a Purchase invoice that will increase the balance of the supplier called ABC, thus increasing the amount of money Bloggs owe ABC.

To be honest, the step involving the purchase invoice register may not happen. The invoice might get posted directly to the ledger, and the arguements happen later. It also depends on whom at Bloggs and Co has authorisation to say that a particular purchase invoice is valid, and may be posted and paid.

This still does not get any money to ABC. Companies do not pay their invoices willingly - they like some prompting.

• A month Later the Credit Control Clerk at ABC will phone up the purchase order clerk at Bloggs and say- right - that's your 30 days - gimme me money!
• All being well (ha ha) Bloggs will write out a cheque for the amount shown on the invoice they got from ABC (the one Bloggs call a purchase invoice) and post it to ABC. They may also print off a Purchase Ledger Remittance that outlines what the cheque is covering. Usually all the outstanding remittances are handled perhaps once a week on a regular payment run.
• Bloggs enter this on the system in the purchase ledger as a Purchase Ledger Payment against the ABC supplier. This will reduce the balance figure on the ABC supplier account in Bloggs' purchase ledger, reducing the amount of money that Bloggs thinks it owes to ABC.
• The cheque and remittance advice turns up at ABC (usually by 2nd class post!) and is whipped of down the bank. The sales ledger clerk then, wielding the remittance advice, enters a sales ledger payment against the Bloggs Customer account on ABC's Sales ledger. This will reduce the balance on the Bloggs account, therefore reducing the amount owed by Bloggs to ABC from ABC's point of view. The sales ledger system will also allocate this payment against the correct invoice - it is entirely possible that Bloggs might pay one cheque per month to cover a number of invoices.

Therefore Bloggs gets the widgets and ABC get the money. Everybody is happy.

Please feel free to blither.

Which leads one to wonder why you have a nominal / general ledger, as it does not seem to have featured so far………