What is a purchase order?

Create purchase orders in GST to help you manage your business inventory better

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What is a Purchase Order?

A purchase order, PO for short, is a legally binding document that a buyer creates for a vendor to indicate information about what they want to buy. This document outlines the quantity, price agreed for the particular products, delivery date and terms of payment for the buyer.


What does a Purchase Order contain?

As previously stated, a purchase order is created when you wish to order products from a vendor, and this has to contain the name and description of these products, along with clear prices and exact quantity.

A purchase order format should clearly specify:

  • Name of vendor, details of vendor, including GSTIN
  • P.O date and due date
  • Products / services you wish to buy with their respective quantity, price, tax rate and HSN / SAC code
  • Payment terms for the purchase and any notes for the vendor.

Differences between purchase order and tax invoice:

An invoice is an official document issued by a seller to a buyer and contains information about sold items, prices, taxes, discounts applied, date of shipment, delivery costs and agreed payment terms.These are the main differences between a PO and an invoice:



Purchase Order

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Issued by a buyer to a seller

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Purchase orders are generated before invoices

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Is used to order goods or services from a supplier

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Defines the terms of a sale

Invoice

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Issued by a seller to a buyer

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Invoices are generated after purchase orders

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Shows the payment which is due for the sold goods

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Marks the confirmations of a sale


What happens after a purchase order is issued?

After a purchase order is issued and sent to a vendor, then he or she will decide if they accept the contract. If the purchase order you sent is accepted, the vendor agrees to invoice you the ordered products at the prices you set and the quantities requested. The vendor will then you send you an invoice based on the purchase order you sent.

Let’s take an example:

You have a textile business and have to purchase new materials from one of your vendors. You create a purchase order in which you specify what materials you need, their prices, tax and payment conditions.The vendor will then agree to the purchase order you sent and sends you the materials you requested, along with an invoice. When you receive these products, you compare the invoice with the initial purchase order and if they match, you pay the invoice that the vendor has sent you. You proceed to register this invoice as a bill for your company, for accounting purposes.

How to create a purchase order under GST using Sleek Bill

In GST, purchase orders can be either local or interstate. Which means a local purchase order will have CGST and SGST on it and an interstate one will have IGST on it.

In Sleek Bill it’s as easy as ever to create a purchase order.In your home screen, create a PO by clicking on + Purchase Order

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Select or add a new vendor and make sure you enter all their details, including GSTIN. Add any relevant details pertaining to the date of the PO, it’s due date or any pre-existing PO number that you would like to reference.

Add the products you wish to order with their respective price, quantity, tax rate and HSN/SAC.

Add your terms and conditions and any other relevant data that you need your vendor to know.

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Preview your new document and save it. This is how a PO can look like when you make it in Sleek Bill.

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Find our what is a purchase order and how to make one.

GST Explained


GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

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With certain current taxes remaining, the following goods and services will be fully or partially exempted from the GST

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Free movement of goods: Business owners will be able to sell more in other states without having to worry about interstate transaction costs. With GST, the entry tax will be eliminated, which will save time and money spent.

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Currently, there are many indirect taxes that both the state and central governments are collecting on every purchase and sale.

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The GST will follow a similar model with the one before it

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GST will have a 4-tier tax structure

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One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

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For inter-state transactions, the Centre will levy Integrated GST (IGST), which is equal to the average of the CGST and SGST rates. After applying IGST, CGST and SGST credits received from purchases, the seller will then pay the remaining IGST on the added value.

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Businesses with turnover revenue of 20 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the north east and hill states.

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A combination of CGST and SGST will be applied to the import of goods and services that come to India. Tax benefits and credits will be given to the state where the imported goods and services are consumed.

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