Accounting glossary

Purchase order (PO)

What a purchase order is, when bookkeepers use them in Xero and QuickBooks, and how POs interact with goods-received notes and supplier invoices in 2026.

By ExpenseFlow team
· 18 May 2026

Definition

A purchase order (PO) is a commercial document issued by a customer to a supplier authorising the purchase of specific goods or services at agreed prices and terms. It serves as the formal commitment that triggers the supplier’s fulfilment and as the underlying contract for the transaction. The PO is generally an offer that the supplier accepts by performing, creating a binding contract under English (and most common-law) contract law.

What a purchase order means in practice

For a bookkeeper, the purchase order is the front of the purchase-to-pay cycle. A PO is raised internally and authorised. The supplier delivers the goods or service. The supplier’s invoice arrives. The bookkeeper matches the invoice to the PO and the goods-received note (the three-way match), approves the bill, and the payment is scheduled.

For most small businesses (under ten employees), the PO step is skipped entirely. The owner or bookkeeper approves each bill as it arrives; the supplier’s invoice is the first formal document in the chain. POs become useful as the organisation grows: separating the approval decision (before delivery) from the payment decision (after invoice) gives finer control and audit trail. The presence of PO discipline is typically a sign of a finance function that has matured past founder-led purchasing.

A practical example: a UK consultancy with a 15-person team and a finance manager raises a PO for new laptops. The PO is for 12 MacBook Pros at 2,400 each, total 28,800 plus VAT. The PO is approved by the CEO and emailed to the supplier. The supplier delivers the laptops two weeks later with a delivery note. The supplier invoice arrives matching the PO quantity and price. The finance manager three-way matches the PO, the delivery note, and the invoice, approves the bill in Xero, and schedules payment for the Net 30 due date. AP increases by 34,560 (28,800 + 5,760 VAT) on bill approval; cash decreases by the same amount on payment.

How purchase orders work by country

United Kingdom

POs are not legally required for any transaction. They are common in mid-sized and larger UK businesses with formal procurement processes; rare in micro-business workflow. Under English contract law, the PO is generally considered an offer that the supplier accepts by performing (delivering the goods or starting the service), creating a binding contract.

Australia

POs are not legally required. Used by AU government entities (under the Commonwealth Procurement Rules), construction businesses (where they tie into the contract chain), and any organisation with formal procurement. The PO number is often quoted back on the supplier’s tax invoice to support payment matching in AP.

Canada

POs are not legally required. Used in Canadian public-sector procurement (under the Canadian Free Trade Agreement and provincial procurement rules) and many private-sector mid-market businesses. The three-way match (PO, goods received, invoice) is standard in CA AP departments and is the most common control discipline finance teams reach for as they professionalise.

New Zealand

POs are not legally required. Less common in NZ SMB practice than in the UK or CA but used by larger organisations and government departments under the Government Rules of Sourcing. Most NZ small businesses operate without POs.

Singapore

POs are not legally required. Common in Singapore corporate procurement, particularly where a parent company in another jurisdiction has standardised the PO-based purchase-to-pay workflow. Singapore SMBs tend to mirror their parent companies’ procurement discipline.

The purchase order sits at the front of the procurement cycle:

  • An invoice is the supplier’s billing document raised against the PO.
  • A tax invoice is the version that supports input tax recovery.
  • A sales invoice is the same document seen from the supplier’s perspective.
  • The supplier invoice creates the accounts payable entry that the PO eventually matches.
  • The reconciliation discipline at AP control often relies on PO matching for high-value bills.

See also

For the practical mechanics of recording supplier bills against POs in Xero or QuickBooks, see the per-software workflow guides as they ship.

FAQ

See the answered questions above for when a PO process is justified, three-way matching, and whether POs create accounting entries.

Questions, answered

Common questions

When does a business need a purchase order process?

When the volume of spend or the number of approval steps justifies the overhead. Most micro-businesses (under ten employees) operate without formal POs; the bookkeeper or owner approves each bill as it arrives. As the business grows, POs become useful for separating the approval decision (which happens before the supplier delivers) from the payment decision (which happens after the invoice arrives).

What is three-way matching?

The AP control practice of confirming three documents agree before paying a supplier: the purchase order (what was authorised), the goods received note or service confirmation (what was actually delivered), and the supplier's invoice (what is being billed). All three must match in quantity and price before payment is approved. Common in larger AP departments; rare in small business practice.

Does a purchase order create an accounting entry?

Not by itself. A PO is a commitment, not a liability. It does not appear on the balance sheet or the P&L. The accounting entry comes when the supplier's invoice arrives and the bill is posted to accounts payable. Xero and QuickBooks track POs as separate objects (in the Purchase Order module) and link them to bills when the bill is later raised against the PO.

Keep exploring

Invoice

A commercial document issued by a seller to a buyer that itemises a transaction (goods or services supplied), the amount due, and the paymen

Tax invoice

A formal invoice issued by a GST or VAT registered supplier that contains the specific information the tax authority requires to support an

Accounts payable

A current liability on the balance sheet representing money the business owes to suppliers for goods or services received but not yet paid f

Sales invoice

An invoice issued by a business to a customer for goods or services supplied, in everyday UK and AU bookkeeping practice often used as a syn

Reconciliation

The bookkeeping process of confirming that the balance shown in the accounting system for a given account matches an independent source, mos

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