Purchase Cycle — Order to Bill

Bisht Ji was on the phone, sounding worried. "The turmeric stock is running low. Diwali season is coming and orders are pouring in. We need 500 kg of raw turmeric from Delhi. And 200 kg of cumin from Jodhpur. Can you place the orders today?"

Meera looked at Negi Bhaiya. He nodded. "Time for you to learn the purchase cycle. Sales is about money coming in. Purchases is about money going out. Same idea, opposite direction."

Sharma Sir added, "And there is one extra thing in purchases that we don't have in sales — TDS. Tax Deducted at Source. When Bisht Ji pays certain vendors, he has to deduct a small percentage and send it to the government. The software handles it, but you need to understand why."

Meera opened ERPLite. The purchase section was waiting.

The Purchase Cycle — An Overview

Just like the sales cycle has steps, the purchase cycle also follows a sequence.

You need goods or services
        ↓
You send a Purchase Order to the supplier
        ↓
Supplier delivers the goods
        ↓
Supplier sends a Bill (invoice)
        ↓
You verify the bill and record it
        ↓
You make the payment (sometimes with TDS deduction)

Here are the steps in a table:

Think of it like ordering supplies for your home:

1. You call the shopkeeper and say "Send me 10 kg rice and 5 kg dal" — that is the Purchase Order
2. The shopkeeper delivers and gives you a bill — that is the Purchase Bill
3. You pay the shopkeeper — that is the Payment

Let us follow Meera as she places Bisht Ji's order for raw turmeric from Delhi.

Step 1: Purchase Order — Placing the Order

Meera clicked Transactions → Purchase → Purchase Order → New.

Item Lines:

Since this is an inter-state purchase (vendor in Delhi, buyer in Uttarakhand), GST will be IGST:

Meera clicked Save.

Important: Like the Proforma Invoice in sales, a Purchase Order does NOT create GL entries. It is a planning document. The accounts are not affected until the Purchase Bill is recorded.

"Always create a PO before buying," Negi Bhaiya said. "It helps in two ways. First, the vendor knows exactly what you want — no confusion. Second, when the bill arrives, you can compare it against the PO. If the vendor charges a different price or sends a different quantity, you catch it immediately."

Meera printed the PO and Bisht Ji signed it. They emailed it to Delhi Spice Suppliers.

Step 2: Purchase Bill — Recording the Supplier's Invoice

Ten days later, the turmeric arrived. The delivery truck from Delhi brought 500 kg of raw turmeric. Along with the goods, the driver handed over the supplier's tax invoice — Bill No. DSPL/2025/1056, dated 10-08-2025.

Bisht Ji's warehouse team checked the goods:

• Quantity: 500 kg — matches the PO
• Quality: Good — no damage, no moisture
• Rate: Rs. 120/kg — matches the PO

Everything matched. Now Meera needed to record this bill in ERPLite.

She opened PO-2025-015 and clicked Convert to Purchase Bill.

ERPLite filled in the details from the PO automatically. Meera added the supplier's bill details:

"Why two numbers?" Meera asked.

"The supplier has their own numbering system," Negi Bhaiya explained. "DSPL/2025/1056 is their invoice number. PB-2025-022 is our internal reference. We need both — ours for our records, theirs for matching with the GST return."

Item Lines:

Meera reviewed everything. She clicked Save as Draft.

Negi Bhaiya compared the bill with the PO. Quantities matched. Rates matched. He clicked Approve & Post.

GL Entry Created Automatically:

Let us understand each line:

1. Purchase goes UP (Debit): We bought goods worth Rs. 60,000. This is an expense (cost of goods).

2. IGST Input Credit goes UP (Debit): We paid Rs. 3,000 as IGST on this purchase. But we don't lose this money — we can claim it as Input Tax Credit (ITC). It offsets the GST we collect from our customers. Think of it as "GST we already paid — the government owes us this back." This is an asset in our books.

3. Trade Payables goes UP (Credit): We owe the vendor Rs. 63,000. This is a liability — money we must pay.

"Notice the difference from the sales invoice," Sharma Sir said. "In sales, GST went to Payable (liability — we owe it to the government). In purchases, GST goes to Input Credit (asset — the government owes us). The two offset each other. That is the whole genius of GST."

Step 3: Payment — Paying the Vendor

The supplier's payment terms are 45 days. But Bisht Ji wants to pay early to maintain a good relationship. He decides to pay on 25th August — just 15 days after receiving the goods.

Here is where something new comes in — TDS.

What is TDS?

TDS stands for Tax Deducted at Source. It is a way of collecting income tax.

Here is the simple explanation: When Bisht Ji pays the supplier Rs. 63,000, the government says — "Wait. Before you pay the full amount, deduct a small percentage and send it to us. The supplier will get the rest. When the supplier files their income tax return, they can claim credit for this amount."

"Think of it like this," Sharma Sir said. "When your school gave you a scholarship of Rs. 1,000 but deducted Rs. 100 for the school fund, you got Rs. 900 in hand. But you could still say 'My scholarship was Rs. 1,000.' TDS is similar — the vendor's bill is Rs. 63,000 but they receive less because some tax is deducted upfront."

When is TDS Applicable?

TDS applies in certain situations. For purchases, the most common section is Section 194Q — TDS on purchase of goods. It applies when:

• The buyer's total turnover exceeds Rs. 10 crore in the previous year, AND
• Purchases from a single vendor exceed Rs. 50 lakh in the current year

For our example, let us assume Bisht Ji's purchases from Delhi Spice Suppliers have crossed Rs. 50 lakh this year, so TDS applies.

The TDS rate under Section 194Q is 0.1% of the purchase amount (excluding GST).

TDS Calculation:

The vendor receives Rs. 62,940 instead of Rs. 63,000. The remaining Rs. 60 is deposited by Bisht Ji to the Income Tax department on behalf of the vendor.

Recording the Payment in ERPLite

Meera clicked Transactions → Purchase → Payment → New.

ERPLite calculated the TDS automatically. Meera just had to confirm it was correct.

She clicked Save as Draft. Negi Bhaiya reviewed and posted.

GL Entry for Payment:

Let us understand:

1. Trade Payables goes DOWN (Debit): We no longer owe the vendor. The liability is cleared.

2. Bank goes DOWN (Credit): Rs. 62,940 left our bank account. This is the net payment.

3. TDS Payable goes UP (Credit): Rs. 60 is now a liability — we owe this to the Income Tax department. Bisht Ji must deposit this TDS within the due date (usually by the 7th of the next month).

"So the vendor gets Rs. 62,940, and the government gets Rs. 60," Meera confirmed. "Total is Rs. 63,000. The bill is fully settled."

"Exactly," Sharma Sir said. "Bisht Ji's obligation to the vendor is done. Now he has a new obligation — to deposit the TDS with the government. He does that monthly."

The Complete Purchase Flow — Summary

Let us trace the journey from start to finish:

Like the sales cycle, ERPLite maintains a Document Trail for purchases:

PO-2025-015 (Purchase Order) → PB-2025-022 (Purchase Bill) → PV-2025-030 (Payment)

Purchase Order vs. Purchase Bill — When They Don't Match

"What if the vendor sends different quantities or charges a different price?" Meera asked.

This happens often in the real world. Let us look at some common situations:

Situation 1: Vendor sends fewer items

You ordered 500 kg but only 480 kg arrived (20 kg short).

When converting PO to Purchase Bill, Meera would change the quantity from 500 to 480. The bill amount adjusts automatically. The remaining 20 kg stays as "pending" on the PO.

Situation 2: Vendor charges a higher price

You agreed on Rs. 120/kg but the vendor's bill says Rs. 125/kg.

Meera should NOT accept this quietly. She should flag it to Negi Bhaiya and Bisht Ji. They can:

• Reject the price difference and ask the vendor to revise the bill
• Accept the new price (maybe market rates went up)
• Negotiate a middle ground

Whatever they decide, the Purchase Bill in ERPLite should match the final agreed amount.

Situation 3: Goods are damaged

20 kg of turmeric arrived damp. Bisht Ji rejects it and sends it back.

Meera records the full 500 kg in the Purchase Bill but then creates a Debit Note for 20 kg (Rs. 2,400 + GST). This reduces the amount owed to the vendor. We covered Debit Notes in the previous chapter.

A Second Purchase — From Rajasthan

To give Meera more practice, Negi Bhaiya asked her to process the cumin order from Jodhpur.

Purchase Order:

The goods arrived on 12th August with the supplier's bill — RMC/2025/445.

Purchase Bill:

Meera converted the PO to a Purchase Bill. Everything matched. She saved as Draft. Negi Bhaiya posted it.

GL Entry:

Payment (without TDS):

Bisht Ji's purchases from Rajasthan Masala Co. have NOT crossed Rs. 50 lakh this year. So TDS does NOT apply here.

The payment is straightforward:

GL Entry:

"See the difference?" Negi Bhaiya said. "When there is no TDS, the payment is simple — the full amount goes to the vendor. When there is TDS, a small part goes to the government. ERPLite handles both cases."

Sales Cycle vs. Purchase Cycle — Side by Side

Meera had now learned both cycles. Let us compare them:

"In sales, you are the giver of goods and the receiver of money," Sharma Sir summarized. "In purchases, you are the receiver of goods and the giver of money. Everything is a mirror image."

TDS — A Quick Reference

Since this chapter introduced TDS, here is a quick reference table of common TDS sections that apply to payments:

"We will study TDS in much more detail in a later chapter," Sharma Sir said. "For now, just remember — TDS is not your money. You deduct it from the vendor's payment and deposit it with the government. If you forget to deduct, you are liable. If you deduct but forget to deposit, you are in trouble. ERPLite helps you track all of this."

In ERPLite, when you mark a vendor as "TDS Applicable" in the Vendor Master, the software automatically calculates TDS whenever you make a payment to that vendor. You just need to confirm the section and rate.

Quick Recap

• The purchase cycle has 3 steps: Purchase Order → Purchase Bill → Payment
• Purchase Order is a formal request to the vendor — it does NOT affect accounts
• Purchase Bill records the vendor's invoice — this creates GL entries (Purchases ↑, Input Credit ↑, Payables ↑)
• Payment settles the vendor's bill — Payables go down, Bank goes down
• TDS (Tax Deducted at Source) is a small percentage deducted from the vendor's payment and deposited with the Income Tax department
• TDS applies in specific situations (based on the nature of payment, the amount, and the buyer's turnover)
• When TDS is deducted, the vendor receives less, and the deducted amount becomes a TDS Payable liability in your books
• Input Tax Credit (ITC): GST paid on purchases is an asset — you can offset it against GST collected on sales
• Document Trail connects PO → Bill → Payment for easy tracing
• Always compare the bill with the PO — check quantities, rates, and totals before recording
• ERPLite auto-calculates TDS when the vendor is marked as TDS-applicable in the Vendor Master

Practice Exercise — Try This Yourself

Bisht Ji wants to buy packaging materials from a local supplier in Haldwani.

Vendor: Pahad Packaging Solutions, Haldwani GSTIN: 05AABPP4567C1Z8 (Uttarakhand — same state) Items:

GST on plastic pouches (3923): 18% GST on jute bags (6305): 5%

Tasks:

1. Calculate the total amount for each item (before GST).

2. This is an intra-state purchase (both in Uttarakhand). Calculate the CGST and SGST for each item.

3. What is the grand total of the Purchase Bill?

4. Write the GL entry for the Purchase Bill. (Hint: there will be two GST input credit lines — one for CGST and one for SGST.)

5. Bisht Ji's total purchases from Pahad Packaging this year are only Rs. 2 lakh. Is TDS applicable? Why or why not?

6. Assume TDS is NOT applicable. Write the GL entry for the payment.

7. Now imagine Bisht Ji buys from a packaging supplier in Gujarat instead. The GSTIN starts with 24 (Gujarat's state code). How would the GST treatment change?

Bonus: If the jute bags arrive and 50 bags are torn, what document would Meera create in ERPLite? Calculate the amount for this document.

Fun Fact

Khari Baoli in Old Delhi — where Bisht Ji's supplier is located — is the largest wholesale spice market in Asia. It has been operating for over 300 years, since the time of the Mughal emperor Shah Jahan. Thousands of tonnes of spices change hands here every day — turmeric from Andhra Pradesh, cumin from Rajasthan, cardamom from Kerala, chillies from Guntur. Every one of these transactions, in every shop, involves a Purchase Order, a bill, and a payment. Millions of accounting entries. Millions of GST calculations. And somewhere in Haldwani, Meera is learning to record all of this, one voucher at a time. The world of spices and the world of accounting — they have always been connected.