CPP Purchase Order Processing & Systems 3 — Questions and Answers
Question 1: In a procure-to-pay (P2P) process, which step immediately follows purchase order approval?
- Invoice receipt and matching
- Supplier selection and negotiation
- PO transmission to supplier (Correct answer)
- Budget encumbrance release
Correct answer: PO transmission to supplier
After a PO is approved internally, it must be transmitted to the supplier to initiate fulfillment of the order.
Question 2: What is the purpose of an 'encumbrance' in purchase order accounting?
- To record actual expenditures once goods are received
- To reserve budget funds at the time a PO is issued, before actual payment (Correct answer)
- To track supplier credit limits
- To document price variances between PO and invoice
Correct answer: To reserve budget funds at the time a PO is issued, before actual payment
An encumbrance is a budgetary reserve created when a PO is issued, ensuring funds are committed before the expenditure is actually incurred.
Question 3: A company uses a two-way match process for low-value purchases. Which two documents are compared?
- Purchase requisition and purchase order
- Purchase order and supplier invoice (Correct answer)
- Goods receipt and supplier invoice
- Purchase order and goods receipt
Correct answer: Purchase order and supplier invoice
A two-way match compares the purchase order against the supplier invoice to verify quantities and prices before approving payment.
Question 4: Which EDI transaction set is commonly used to transmit purchase orders electronically between trading partners?
- EDI 810
- EDI 850 (Correct answer)
- EDI 856
- EDI 997
Correct answer: EDI 850
EDI 850 is the standard Purchase Order transaction set used to electronically transmit PO data from buyer to supplier.
Question 5: A purchasing manager wants to reduce the number of individual POs issued for routine office supplies. Which strategy best addresses this?
- Implementing a vendor-managed inventory program
- Consolidating purchases using a procurement card (P-card) program (Correct answer)
- Issuing a single annual purchase order for all supplies
- Requiring competitive bids for all supply purchases
Correct answer: Consolidating purchases using a procurement card (P-card) program
Procurement cards allow employees to make small purchases directly, drastically reducing low-value PO volume while maintaining spend visibility.
Question 6: Under the Uniform Commercial Code (UCC), when does title to goods typically transfer from seller to buyer in a FOB destination shipment?
- When the seller ships the goods
- When the buyer issues the purchase order
- When the goods arrive at the buyer's destination (Correct answer)
- When the buyer pays the invoice
Correct answer: When the goods arrive at the buyer's destination
Under FOB destination terms, title and risk of loss transfer to the buyer when goods arrive at the specified destination.
Question 7: Which PO system feature allows a buying organization to automatically generate replenishment orders when inventory falls below a set level?
- Supplier portal integration
- Kanban or min/max reorder triggering (Correct answer)
- Dynamic discounting module
- Contract lifecycle management
Correct answer: Kanban or min/max reorder triggering
Min/max or Kanban reorder triggering automatically generates purchase orders when on-hand inventory drops below the reorder point threshold.
CPP Purchase Order Processing & Systems 3
In a procure-to-pay (P2P) process, which step immediately follows purchase order approval?