Part 2 · Running the business · Chapter 2.2
Buying and paying
Draft: the wording may change.
The idea
At a restaurant, before you pay, you look at the check: did I order this, did it come to the table, is the price right? Buying stock is the same. Three papers must agree before any money goes out: what you ordered, what you received and what you were billed. This is the restaurant check.
The three papers
| Paper | Who makes it | What it says | Kind (chapter 1.2) |
|---|---|---|---|
| Purchase order (PO) | You | What you asked for, at what rate | No entry |
| Goods received note (GRN) | Your godown | What actually came, counted and checked | Stock only |
| Purchase bill | The supplier | What they say you owe | Money and stock |
The PO is the order. The GRN is what came to the table. The bill is the check. You pay on the bill only after it agrees with the other two.
At the counter
You send a PO to a biscuit company for 50 cases at ₹1,200 a case: ₹60,000 before tax.
The lorry arrives. The godown keeper counts and writes the GRN:
- 48 cases arrived (2 short).
- 1 case is crushed and wet.
- 47 good cases go on the shelf.
Two days later the bill arrives: 50 cases at ₹1,240 a case, ₹62,000 before tax.
Put the three side by side:
| PO | GRN | Bill | Difference | |
|---|---|---|---|---|
| Cases | 50 | 48 (1 damaged) | 50 | Billed for 2 that never came |
| Rate | ₹1,200 | — | ₹1,240 | ₹40 a case more than agreed |
What you should pay for is 47 good cases at ₹1,200 — ₹56,400 before tax, not ₹62,000. The gap is ₹5,600 before tax. On one lorry.
How it is settled:
- The shortage and rate difference go back to the supplier as a debit note (or the supplier sends a corrected bill or a credit note — chapter 1.10).
- The damaged case is either returned with a debit note or claimed under the company's damage policy (Part 3).
- Only then is the payment released, for the matched amount.
Pay against bills, not against the account
When you pay, mark the payment against the bills it settles, the same way a receipt is set against a sales bill (chapter 2.1). Then you always know which bills are open, which are disputed and which are paid. A payment made "on account" leaves you arguing later about which bill it was for.
Also check that the supplier's bill appears in the GST data the portal shows you. Your input tax credit depends on the supplier reporting the bill. Chapter 2.6 covers this monthly match.
Common mistake
Entering the purchase bill into stock as it is, without looking at the GRN. The books now show 50 cases. The shelf has 47. The ₹5,600 difference sits silently in the supplier's account until someone pays it. Months later the stock count shows a "shortage" that was really a supplier's billing error you could have claimed at the time. Stock comes in on the GRN quantity; the bill is checked against it.
Where you'll use this
In Part 3, the company's primary bill is checked the same way, plus one more line: the scheme. Free goods and scheme discounts on the bill must match the scheme circular. A missing scheme line is money you claim, and the restaurant check is where you catch it.
Check yourself
- Name the three papers that must match before you pay a supplier.
- The GRN shows 48 cases; the bill shows 50. What do you do?
- Why should a payment be marked against specific bills?
Answers
- Purchase order, goods received note, purchase bill.
- Do not pay for 50. Raise a debit note for the 2 short (or ask for a corrected bill) and pay only for what was received in good condition.
- So you always know which bills are open, paid or disputed, and payments cannot be argued over later.