Month End Glossary

Purchase Order (PO)

A purchase order (PO) is a document prepared by a buyer to request goods or services from a seller, specifying quantities, prices, and other details.

A purchase order, often referred to as a PO, is a formal document created and issued by a buyer to a seller as an offer to purchase specified goods or services under certain conditions. The purchase order enumerates details such as the descriptions, quantities, and agreed-upon prices for the goods or services. It may also include terms regarding delivery schedules, payment arrangements, and other agreed-upon conditions or legal references that will be binding upon acceptance of the order by the seller. For example, a company may issue a purchase order to a supplier requesting 100 widgets at a unit price of $10, to be delivered within two weeks, payable within 30 days of receipt. Once the seller accepts the PO, it becomes a legally binding contract between the two parties. POs are critical for businesses to maintain clear and documented communication, improve cash flow management, and ensure proper inventory control. They also serve as an audit trail and reference point for disputes or financial tasks such as reconciliations or budgeting.

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