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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 amount 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:
    • 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)
    • 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:
    • 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 that had been reserved by the PO transaction are now being used to issue payment to the vendor; the PO commitment transaction is replaced with an "actual" expense transaction.
  • In the departmental Controlling (CO) accounts (Cost Center or Internal Order):
    • 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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