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Purchase Orders

Overview of Accounting Process for Purchase

Orders
The following is a brief overview of the Purchase Order process from an accounting perspective:

Purchase Requisition (PR)

What is it?
A request for approval to proceed with an order for goods and services

What happens in FIS?

A reservation (commitment) is made against the departmental budget recorded in the Funds
Management (FM) accounts (CFC or CFC/Fund combination)

No "actuals" are recorded against these accounts at this time

Purchase Order (PO)

What is it?
A contract between a customer and a vendor regarding the purchase of goods and/or services stipulating
some terms and conditions concerning the purchase

What happens in FIS?

If a purchase requisition has already been created in FIS, there is no financial impact on the amoun
of budget reserved for this transaction; the reservation (commitment) against the departmental FM
accounts already exists. The actual commitment is moved from the purchase requisition to the
purchase order.

If a purchase requisition is not already created, the purchase order transaction is created and a
reservation is made against the budget in the departmental FM accounts.

No "actuals" are recorded against these accounts at this time

Goods Receipt (GR)

What is it?
An acknowledgement of the "receipt" (e.g. acceptance) of goods and/or services. This implies that the
payment can proceed because the conditions of the Purchase Contract (e.g. P.O.) have been met.

What happens in FIS?

In the departmental FM accounts:

o

The commitment (reservation) against the budget in the departmental FM accounts remains
unchanged.

No "actuals" are recorded against these accounts at this time.

In the departmental Controlling (CO) accounts (Cost Center or Internal Order)

o

An entry is made as follows:

DR: Expense (against the departmental cost center or internal order only)
CR: Accrued Liability account (G/L 537000)
The posting of the GR document represents the acceptance of the goods and/or services as delivered, and
records this as an "accrued" University liability. An "accrued" liability is one where we (UofT) acknowledge
that a payment is owed to an external party, but no formal request (e.g. invoice) for payment has been
received.

Invoice Receipt (IR)

What is it?

Formal request for payment by a vendor for goods and/or services delivered.

What happens in FIS?

In the departmental FM accounts two events occur:

o

The PO commitment (reservation) is reduced by the amount requested in the invoice and a
corresponding amount of budget is made available for payment

An "actual" expense transaction is recorded at this time Note: The same budget dollars tha
had been reserved by the PO transaction are now being used to issue payment to the vendo
the PO commitment transaction is replaced with an "actual" expense transaction.

In the departmental Controlling (CO) accounts (Cost Center or Internal Order):

o

There is no activity as a result of this transaction; the CO accounts are only updated at the
point that the GR document is posted.

Since a request for formal payment has now been made, the IR document results in the following
posting to the UofT accrual and vendor accounts

DR: Accrued Liability account (G/L 537000)

CR: Vendor account
This entry moves the liability record from the "general liability" account (G/L 537000) to the appropriate
vendor account for payment.

What to do when corrections are required to a

Purchase Order document
Purchase order no longer required:
See the quick reference guide: Finalize and Cancel Purchase Order.

Goods Receipt document recorded, but payment to the vendor was not
processed using the Invoice Receipt process (e.g. entered as a "certified
invoice")
Two steps are required:
1. Reverse the Goods Receipt document; see the quick reference guide: Goods Receipt
Reverse
2. Cancel Purchase Order; See the quick reference guide: Finalize and Cancel Purchase
Order
If you have any further questions, please contact your FAST Team Faculty Representative.

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Financial Services Department, University of Toronto, 215 Huron St, 2nd floor, Toronto, ON, M5S 1A2