What must be true about a purchase order (PO)?

A purchase order (PO) serves a vital role in procurement processes, representing a legally binding document between a buyer and a seller. One of the key aspects of a PO is that it signifies an obligation of funds. This means that once a PO is issued, the buyer is committed to paying the seller for the goods or services specified in the order, thus creating a financial obligation that reflects the organization’s commitment to the purchase.

This obligation is critical for budget management and accounting, as it ensures that funds are earmarked for specific expenditures. When funds are obligated, they are effectively reserved for the intended purpose, preventing overspending and helping organizations maintain oversight of their financial commitments.

Understanding this function of a PO clarifies its importance in the acquisition process and emphasizes the necessity of ensuring that adequate funds are available before a purchase order is issued.