Difference Between Purchase Order and Sales Order

A Purchase Order is simply an order raised by the organization, which contains information related to the product or the number of products that the organization wants to purchase from a supplier. On the Contrary, a Sales Order implies an order generated by the firm and delivered to its customer that acts as a confirmation document regarding the supply of the specified quantity of the goods or services, at a specified time, and agreed upon terms and conditions.

Basically, the purchase order conveys the list of items that the company would like to buy, based on the negotiated terms. Conversely, a sales order outlines the purchase order number, against which the sales order is issued, along with other information mentioned in the purchase order.

This post will help you understand the difference between purchase order and sales order, along with their importance in the field of business.

Content: Purchase Order Vs Sales Order

1. Comparison Chart
2. Definition
3. Key Differences
4. Format
5. Contents
6. Conclusion

Comparison Chart

Basis for Comparison	Purchase Order	Sales Order
Meaning	Purchase Order is a written commercial document that authorizes a supplier to supply the stated materials, at the agreed terms and conditions.	Sales Order is a confirmation document that is issued to the buyer by the seller, prior to the delivery of the specified goods or services.
Who prepares it?	Prepared by the buyer and is sent to the supplier.	Issued by the supplier to its buyer before delivery.
Effect of acceptance	Creates a contract between the buyer and supplier.	It approves the sale.
Document	Internal Document	External Document
Signifies	Intention to purchase certain goods and services from the seller.	Agreement to sell certain goods and services to the buyer.
When it is generated?	On the acceptance of the seller's offer, quotation, or proposal.	On receiving the purchase order.
Objective	To authorize sale	To confirm sale

Definition of Purchase Order

Purchase Order indicates an official authorization of the buyer’s intent in the form of a written document prepared by the company’s purchase department, which authorizes the supplier to provide the stated quantity of materials of specified quality at the agreed-upon terms and price.

On the selection of the supplier from the list of available registered vendors, the purchasing department passes an order of materials and so preparation of the purchase order takes place. Purchase Order needs to be prepared carefully as it constitutes a legal contract between the contracting parties, i.e. the buyer and supplier. Hence, only selected responsible officials are authorized to sign the purchase order.

When the order is placed, the supplier is obligated to supply the materials, stores, etc based on the terms and conditions specified in the order itself. Additionally, the purchaser is also bound to accept the delivery of the goods supplied and pay for the materials, which are agreed upon.

Copies of Purchase Order

Purchase Order is raised in five copies, which is distributed to:

• The original copy is sent to the supplier of the goods.
• The second copy is kept by the purchasing department
• The third copy is issued to the goods receiving department which acts as a prior intimation to expect the materials.
• The fourth copy is handed over to the cost accounting department or accounts department for recording the entry in the ordered column of the concerned store’s ledger account.
• The final copy is issued to the initiating department requisitioning the material as an indication of the order and expected date of receipt of materials.

In the end, follow-up of purchase orders is taken, to make certain the timely delivery. Moreover, at the time of placement of the order, the purchasing department of the organization needs to ensure that the amount of the order, is not in excess of the purchase budget or the limit specified in this regard. Further, if the amount exceeds the limit specified, approval of the finance department has to be obtained first.

Purpose of Purchase Order

1. Purchase Order (PO) serves as proof of the legal contract between the buyer and seller, that binds both the parties.
2. It authorizes the supplier to deliver the specified material.
3. It also authorizes the goods receiving department to accept the delivery of the materials which are ordered.
4. It also authorizes the accounts department to accept the invoice from the concerned supplier, regarding payment of the delivery.

What is Purchase Order Form (POF)?

Purchase Order Form is a form used by the purchasing department to order specified supplies and materials, from the supplier. It depends on the specifications mentioned in the purchase requisition form, which bears the signature of the procurement manager. Purchase Order Form includes:

• Name and Address of the purchasing firm.
• Name and Address of the supplier.
• Date of Order
• Terms of Payment
• Price
• Delivery Instructions
• Delivery Date

Also Read: Difference Between Purchase Order and Invoice

Definition of Sales Order

Sales Order (SO), can be defined as a commercial document that is used to confirm the terms of the transaction. It is prepared by the seller when he receives a purchase order which specifies the product details. Hence, a sales order is prepared on the basis of the purchase order received from the buyer, which can be requested by the customer to match the details of the products which are going to be supplied by the supplier.

Sales Order provides information relating to the inventory, regarding the products in stock, and how many products are there in backorder. It facilitates the purchasing department of the organization to forecast more rationally while purchasing from the suppliers.

Now, the question is – what is a backorder? Well, a backorder is the order of items that cannot be shipped because they are not in stock at present.

There are a number of organizations that create long-standing sales orders. These orders are for their regular customers and deliver goods and services for the long term against such orders. Long-standing sales orders are generated in reference to blanket orders.

What is Blanket Order?

An order given by the customer to buy a specified volume of product over a specified time period at terms and conditions which are pre-negotiated is termed a blanket order.

Purpose of Sales order

• It is issued to confirm the supply of goods and services, which are requested for purchase by a party. It indicates that the buyer has reviewed the items to be supplied.
• It documents the needs of the customer and explains the sale.
• It lists out the details of the order.

Also Read: Difference Between Voucher and Invoice

Format of Purchase Order

Format of Sales Order

Contents of Purchase Order

• Purchase Order Number
• Date of Purchase Order
• Name and Address of the Supplier
• Name and Address of the Buyer
• Code Number of the Required Items
• Quantity of Each Item
• Description of Items
• Rate of Items
• Date, Time, and Place of Delivery
• Freight Charges, Packing Charges, and Terms of Payment
• Shipment Method
• Signature of the Purchase Manager

Contents of Sales Order

• Sales Order Number
• Date of Sales Order
• Name and Address of the Customer
• Name and Address of the Seller
• Delivery Address
• Reference Purchase Order
• Material List
• Quantity of each item
• Rate of each item
• Terms of Payment
• Date, Time, and Place of Delivery
• Material Dispatch Location
• Mode of Transport
• Delivery Partner
• Signature of Authorized Person

Conclusion

Purchase Order is a commercial document, which binds the purchaser to take the delivery of the goods contained in the document, if the terms so mentioned are satisfied. However, on the acceptance of the sales order by the customer (buying organization), it becomes binding on the parties concerned. It is issued against the purchase order.