With QuickBooks for Windows and Bill.com, purchase orders are managed in QuickBooks. To pay the bill for a purchase order in Bill.com, follow the steps below to ensure your workflow process is correctly managed.
- create an Other Asset account labeled “PO Clearing”.
- create an Other Charge Item labeled “PO Clearing” tied to “PO Clearing” Other Asset Account to use for all your purchase orders.
1) create the purchase order.
- The purchase order itself is created in QuickBooks for Windows and sent to the vendor to fulfill the inventory order.
- A debit posts to the items recorded in QB for the price paid (total amount equals the item receipt).
When the inventory items from the purchase order arrive,
2) Create an item receipt in QuickBooks.
3) Zero out the receipt by adding a credit for the “PO Clearing” charge item as a reverse amount for the total
- Vendors send an invoice for shipped goods with the purchase order slip.
- This second half of a purchase order is the "item receipt", acts as an Invoice to be paid by the recipient upon receipt of the inventory items.
- Zeroing out the receipt will Debit the Inventory Asset, and Credit the “PO Clearing” charge item
4) Send the receipt to your Bill.com account (email, fax, or upload).
5) Enter the receipt as a bill.
5) Enter the total amount of the receipt to your “PO Clearing” charge item.
- The item receipt is sent to Bill.com as a bill for the amount of the zero'ed out Item Receipt.
- The “PO Clearing” charge item is used as the expense account and when paid as normal, the Inventory debits and credits match against the Purchase Order Debits and Credits, allowing for reconciliation for the item cost.
- This will result in a Credit to your Accounts Payable, and Debit to “PO Clearing” other charge item.
HOW IT WORKS
A purchase order is a statement for intent to buy, prior to actual purchase.
- This type of contract authorizes an order from the vendor, before the vendor has received or charged the client for the order.
- The expense of the payable bill can be recognized as an account payable upon receipt of said inventory.
- Inventory quantities can also be recognized upon receipt of the invoice to account for the total items received, and total cost of purchase.
- On your balance sheet, Items from purchase orders appear as inventory, and payable bills for items appear as liabilities.