IT Financials Glossary

Commitments

Posted in Purchasing by mgentle on August 26, 2010

Commitments : the amount owed to a vendor once a product or a service has been delivered but the invoice has not yet been paid.

Note that a commitment is not the same as an accrual. Commitments are recorded in the management accounting system, whereas accruals are recorded in the financial accounting system – and are therefore officially “on the books”.

Some companies extend the scope of commitments to include the total cost of a PO, minus the notice period for cancellation. So if a PO for six months of services can be cancelled with a notice period of one month, then commitments would be the sum of all uninvoiced work plus one month of invoicing. Needless to say, only the uninvoiced work actually done can be accrued.

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Purchase Order (PO)

Posted in Purchasing by mgentle on August 26, 2010

Purchase order (PO): an official request to a vendor to provide goods or services at agreed conditions (price, quantity, delivery dates and payment terms).

It is important from an IT cost-management perspective to correctly determine whether the goods or services being purchased are to be assigned to a capex or an opex account, or a combination of the two. ERP systems can be automatically set up to do this for unambiguous things like physical goods (eg servers = capex). Unfortunately this is not always possible for services delivered by contractors, consulting companies or integrators, which can be capex or opex. In such cases then, this has to be manually done.

Purchase requisition

Posted in Purchasing by mgentle on August 26, 2010

Purchase requisition: a request to raise a purchase order (PO) as part of an approval process. An approved purchase requisition normally contains all of the information necessary to raise the PO.

Receiving

Posted in Purchasing by mgentle on August 26, 2010

Receiving: the accounting process whereby the goods or services associated with a PO are recorded as having been delivered. Since most IT purchases are for services and for people (contractors and consultants) rather than physical goods in an inventory or stock environment, receiving usually means entering the number of days people have worked (time and materials) or the monetary amount corresponding to a project milestone payment (fixed-price contract).

In accounting software systems, once goods or services have been received, accruals can be generated.