Definition
A Purchase Requisition is a document used within a company to request specific goods or services from the purchasing department. It provides detailed information including the type, quantity, and estimated cost of the items or services required. It is often the first step in the purchase process to ensure expenditure control and proper authorization.
Key Takeaways
- A Purchase Requisition is an internal document in a company, which an employee generates to request the procurement of a good or a service. It’s an effective way for a company to manage spending.
- It includes key information such as the name and quantity of the item, the required date, price estimate, and budget information. This detail helps the purchasing department, or person in charge, to decide whether to approve the requisition.
- By using Purchase Requisitions, organizations can maintain better fiscal control and facilitate smoother operational workflow. It also aids in keeping track of expenses, managing budgets and enabling an audit trail for purchase transactions.
Importance
Purchase Requisition is a crucial term in finance because it introduces a systematic sequence of approval for acquiring goods or services, which in turn encourages accountability and prudent financial management in an organization.
A Purchase Requisition signifies the initial formal request for a purchase, which must be approved before a Purchase Order can be issued to a supplier.
It denotes the need for a particular commodity or service and often includes details like the quantity desired, price, and a detailed description of the item.
This process safeguards against unauthorized or unnecessary purchases, supports budget tracking and control, facilitates audit trails, and typically results in increased cost efficiency and organizational performance.
Explanation
Purchase Requisition serves as a pivotal document in the procurement process of any company. Its primary purpose is to initiate a business transaction for acquiring goods or services needed for running a successful operation. It is an internal document that is circulated within departments, where an employee will specify what they need, the quantity, and by when.
This provides a system of checks and balances within the company — ensuring that unauthorized purchases aren’t made, thus helping with financial control. A Purchase Requisition also facilitates the appropriate approval process for a proposed purchase. Upon creation of a purchase requisition, the document follows a hierarchy, going through managers or department heads for approval before reaching the procurement department.
This multi-layered process ensures that the right individuals within the company have reviewed and agreed to the potential purchase. It benefits the company by preventing overspending and making sure the purchase aligns with the company’s overall plans and budgets. It becomes a written record of communication, ensuring transparency and accuracy in business transactions.
Examples of Purchase Requisition
Office Supplies Ordering: In order to ensure that an office functions smoothly, there is a continuous requirement for supplies such as paper, pens, ink cartridges, and more. Before these items can be bought, an employee must fill out a purchase requisition describing what they need and the estimated cost. Once this is approved by the authorizing personnel, like a manager or a purchasing department, the order can be placed.
Hardware/Software Upgrades: In a tech-driven company, there is a frequent need for hardware and software upgrades or repairs. So, if an employee needs a new laptop or specific software for work, they might need to fill out a purchase requisition form detailing the specifics of their requirement and cost. It then needs approval from the concerned authority before being forwarded to the purchasing department.
Construction Equipment Rental: In a construction project, a company may need to rent specific equipment for a limited period. A site manager would prepare a purchase requisition to detail the needed equipment, rental duration, and estimated rental cost. This would then be approved and passed on to the purchasing department for action.
Purchase Requisition FAQ
What is a Purchase Requisition?
A Purchase Requisition is an official document or format that an employee creates to define the exact requirement of products or services for the sake of an approval or purchase order. It is an internal document that doesn’t leave the organization.
Why is a Purchase Requisition important?
A Purchase Requisition allows department heads to have control over purchases made in their department. It prevents unauthorized purchases, aids in budget control, and helps facilitate communication between different departments.
Who typically creates a Purchase Requisition?
In most organizations, the individual who needs the product or service will create the Purchase Requisition. This is usually an employee within a specified department who has identified a need not currently met within the organization.
What information does a Purchase Requisition include?
A Purchase Requisition typically includes the name of the person requesting the purchase, the date of the request, the department, the items or services requested with their respective quantities, the estimated cost, and the need by date.
What happens after a Purchase Requisition is approved?
Once a Purchase Requisition has been approved, it is typically converted into a purchase order. This purchase order is then sent to the vendor, who fulfills it. In some cases, for higher-value purchases, a bidding process may be initiated.
Related Entrepreneurship Terms
- Procurement Process
- Vendor Selection
- Budget Approval
- Inventory Management
- Expense Reporting
Sources for More Information
- Investopedia: A comprehensive finance website offering definitions, explanations and examples on a variety of finance-related terms and concepts, including Purchase Requisition.
- AccountingTools: A reliable resource for anyone interested in finance or accounting, with a depth of information on purchase requisition among other topics.
- CFA Institute: A leading professional association for finance professionals, providing educational resources and research on a range of finance topics.
- IBM: Known for its technology, IBM also boasts extensive insights on many business process topics, providing detailed information on systems and procedures like purchase requisition.
