Purchasing System

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DEFINITION of 'Purchasing System'

A method used by businesses to buy products and/or services. A purchasing system manages the entire acquisition process, from requisition, to purchase order, to product receipt, to payment. Purchasing systems are a key component of effective inventory management in that they monitor existing stock and help companies determine what to buy, how much to buy and when to buy it. A popular purchasing system is based on economic order quantity models.

BREAKING DOWN 'Purchasing System'

Purchasing systems makes the purchasing process more efficient and helps companies reduce supply costs. Computerized purchasing systems can cut companies' administrative costs, shorten the length of the purchase cycle and reduce human error, thereby minimizing shortages. They can also simplify order tracking and make it easier to manage purchasing budgets by quickly creating expenditure reports.

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RELATED FAQS
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    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
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    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
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