CAT MA1 Course Notes Contents Page
Introduction to Source documents
This chapter looks at how purchases, sales, labour and materials are recorded and controlled.
The material control cycle
The material cycle can be depicted as:
At each stage there should be documents or other procedures that allow control to be exercised.
Purchase requisition: there will normally be a purchase requisition note showing:
- Sequential document number
- Date of requisition
- Stock code
- Quantity needed
- Supplier
- Supplier’s product code
- Signatures authorising the requisition
The purchase requisition notes are passed to the purchasing department where they will be examined and approved or queried. Sometimes, despite the supplier being entered on the purchase requisition, the purchasing department might ask several suppliers for quotations.
A purchase order is then raised (created). This will typically show:
- Our name, address and contact details
- Purchase order number
- Date
- Supplier’s name and address
- Details of goods required: product codes, description, unit price and total price.
- Authorisation
The order will have at least two copies: one for the supplier one for the stores to inform them that a delivery is expected.
When goods are received, they will usually be accompanied by a delivery note. This will show the information that is on the purchase order, except for the value of the goods. Goods should not be accepted before checking to a copy of the order that they have, in fact, been ordered. One copy of the delivery note is signed and kept by the supplier. Usually the receiving company will create a standard goods received note from the delivery note. The goods will be stored in the warehouse and stock records on bin cards (see below) will be updated from the goods received note.
A purchase invoice showing the payment due will be received from the supplier, and before this is approved for crediting to the suppliers account and subsequent payment, it should be matched to the order and goods received note to ensure that the correct goods have been received.
When materials are needed for production a materials requisition note should be created requesting the release of material from the stores: part/material code, quantity, job number and so on. This should be signed by the person requesting the goods. Stock records will be updated as goods are issued.
There might be production order setting out goods and labour needed for the production of the goods ordered by customers.
As goods are produced they will be transferred from the production line to the finished goods store. Stock records there should be updated with goods description, quantities and costs.
Customer orders will initiate sales. From those, despatch (or delivery notes) will be produced. These can be used as the basis for taking goods from stores, updating the bin card (see below) packing the goods and despatching them. There will usually be three copies of the delivery note: two go with the goods and of those one stays with the customer and one is signed by the customer and returned as proof of delivery receipt. One copy will stay in the despatch department in case of later queries.
Central to the material control cycle is the recording of the amount of inventory as this will determine when goods need to be ordered and will also record the receipt and issue of goods.
In manual accounting systems bin cards are used (a bin is where a specific item of inventory is stored). The equivalent records are now usually held in computer systems. A typical bin card would look as follows:
This allows a continuous recording of stock quantities.
A particularly important figure to calculate is free inventory. This is
Free inventory = Quantity on hand plus units ordered less units allocated for use
The calculation of free inventory has the advantage of anticipating stock movements so that receipts and issues that are known about are taken into account when assessing the need to order.
To ensure that the inventory as recorded on the bin cards is accurate, companies should carry out periodic stock counts (sometimes called cycle counts) and correct the amounts on the bin cards. Some companies carry out one only stock count per year.
Leave a Reply
You must be logged in to post a comment.