A non-inventory purchase order (PO) is a formal document used to request the procurement of goods or services that are not classified as inventory. Unlike items purchased for resale or as direct components of a product, non-inventory items are typically consumed by the business for its operational needs.
Understanding Non-Inventory Purchases
Non-inventory refers to items or services that are acquired by a business for its internal operations rather than for direct resale, inclusion in a product for sale, or as raw materials that become part of a final product. These purchases are generally expensed as they are consumed or used within a specific accounting period. They do not sit in a warehouse to be sold later and are not tracked as part of a company's stock levels.
Common Examples of Non-Inventory Items
Businesses utilize non-inventory purchase orders for a wide array of necessities that keep their operations running smoothly. Examples include:
- Office Supplies: Pens, paper, printer ink, staplers, and other consumables used daily in an office environment.
- Software Licenses and Subscriptions: Annual fees for business software, cloud services, or specific applications.
- Consulting and Professional Services: Legal advice, accounting services, marketing campaigns, or IT support from external vendors.
- Marketing Materials: Brochures, business cards, promotional merchandise, or advertising space.
- Repairs and Maintenance: Services for equipment upkeep, facility repairs, or vehicle maintenance.
- Utilities: Monthly bills for electricity, water, internet, and gas.
- Furniture and Fixtures: Office desks, chairs, filing cabinets, or light fixtures.
- Cleaning Supplies: Detergents, sanitizers, and tools for maintaining hygiene in the workplace.
- Travel and Entertainment Expenses: Although often handled through expense reports, some larger corporate travel arrangements might utilize a PO.
Non-Inventory vs. Inventory Purchase Orders
While both are types of purchase orders designed to formalize a procurement request, their fundamental purpose and how the purchased items are treated within a business's accounting system differ significantly.
| Feature | Non-Inventory Purchase Order | Inventory Purchase Order |
|---|---|---|
| Purpose | To acquire goods or services for internal consumption or operational needs. | To acquire goods for resale or raw materials/components for manufacturing finished goods. |
| Nature of Goods | Services, office supplies, furniture, software, consulting, MRO (Maintenance, Repair, Operations) | Raw materials, finished goods for resale, work-in-progress components. |
| Accounting | Typically expensed immediately or over a short period. Does not become part of stock valuation. | Capitalized as an asset (inventory) on the balance sheet until sold or used. |
| Stock Mgmt. | Not tracked in inventory management systems; no stock levels are maintained. | Tracked rigorously in inventory systems; stock levels, reorder points, and valuation are key. |
| Impact on COGS | Does not directly impact Cost of Goods Sold (COGS). | Directly impacts COGS when sold. |
Why Use a Non-Inventory Purchase Order?
Even for items that aren't for sale, formalizing their purchase through a non-inventory PO offers several advantages for businesses:
- Expense Tracking and Budget Control: Provides a clear record of expenditures, enabling better tracking against departmental or project budgets and preventing unauthorized spending.
- Audit Trail and Compliance: Creates a documented history of all non-inventory purchases, which is crucial for internal audits, financial reporting, and regulatory compliance.
- Supplier Management: Helps formalize relationships with service providers and non-product vendors, ensuring clarity on terms, pricing, and delivery of services or goods.
- Cost Analysis: Facilitates analysis of operational spending, helping identify areas for cost reduction or efficiency improvements.
- Authorization and Accountability: Ensures that all purchases, regardless of their nature, go through a proper approval workflow, assigning accountability for spending.
Key Elements of a Non-Inventory PO
A typical non-inventory purchase order includes essential details to ensure clear communication and accurate record-keeping:
- PO Number: Unique identifier for tracking.
- Vendor Information: Name, address, and contact details of the supplier.
- Buyer Information: Company name and address, often including the department or individual requesting the purchase.
- Date: Date the PO was issued.
- Requested Delivery Date: When the goods or services are needed.
- Description of Goods/Services: Detailed breakdown of what is being purchased, including quantity (if applicable), unit cost, and total cost.
- Account/Cost Center: The internal budget code or department that will be charged for the expense.
- Terms and Conditions: Payment terms, delivery instructions, and other relevant contractual clauses.
- Authorization Signatures: Approvals from relevant personnel, such as department heads or finance.
