Purchase Module in Business Central

Understanding the Role of a Purchase Order

A Purchase Order is the primary operational document used to request goods or services from a vendor. It is not merely a document for communication; it acts as a central control point that links vendor agreements, inventory management, and accounting.

When a Purchase Order is created, it represents an intention to buy, not an actual financial transaction. At this stage, Business Central does not record any accounting entries. The system simply captures the details of what is expected to be received, at what cost, and from which vendor.

This design ensures that commitments can be planned and tracked without prematurely affecting financial reports.

Creating a Purchase Order in Business Central

The purchase process typically begins once a vendor has been set up with appropriate posting groups, payment terms, and tax configurations. When creating a Purchase Order, the user selects the vendor and enters document-level information such as posting date, document date, and currency.
Each line on the Purchase Order represents an item, service, or charge being procured. For item-based purchases, the system records quantities, unit costs, and expected delivery details. For non-inventory purchases, such as services, the focus is on expense recognition rather than stock movement.

At this stage, the Purchase Order serves three important business purposes.
First, it acts as an internal approval and planning document. Second, it communicates purchase expectations to the vendor. Third, it provides a structured base for future receipt and invoicing processes.

Despite its importance, no inventory is increased and no accounting entries are created when the Purchase Order is saved.

What Happens Before Posting

Before any posting occurs, Business Central allows flexibility. Quantities can be modified, prices can be renegotiated, and even vendors can be changed depending on business rules. The Purchase Order remains editable because it has not yet transitioned into a legal or financial document.

This separation between document creation and posting is intentional. It protects financial integrity by ensuring that only verified and completed transactions impact ledgers.

Once goods physically arrive or services are rendered, the Purchase Order moves into the execution phase.

Posting the Purchase Order – Receipt and Invoicing

Posting a Purchase Order can occur in different ways depending on business practice. Some organizations post both receipt and invoice together, while others separate them. When posting a receipt, the system acknowledges that goods have physically arrived. Inventory quantities are updated, but financial liability is not yet recorded. This is common when invoices arrive later from vendors.

When posting an invoice, Business Central recognizes the vendor’s claim for payment. Financial entries are created, vendor balances are updated, and expenses or inventory values are formally recorded.

The system allows:
• Posting receipt only
• Posting invoice only (in service-based scenarios)
• Posting receipt and invoice together
Each option has a different accounting impact.

Posted Purchase Receipt – Operational Impact

When a Purchase Receipt is posted, Business Central increases inventory quantities for item-based purchases. However, no vendor ledger entry is created at this stage. This is because the vendor has not yet issued a formal invoice, and the business does not legally owe payment yet.

The receipt serves as a historical and operational record. It confirms that goods have been received and are now available for use, sale, or production. Inventory is physically present, but financially, the cost is still considered expected rather than actual. This distinction is critical for accurate cost tracking and audit trails.

Posted Purchase Invoice – Financial Impact

Posting the Purchase Invoice is the point at which the transaction becomes financially binding. Once the invoice is posted, the system records the obligation to pay the vendor and reflects the cost in the general ledger.

At this moment, Business Central performs several coordinated actions. It records the vendor liability, recognizes the purchase cost, calculates applicable taxes, and finalizes inventory valuation.

After posting, the Purchase Invoice becomes immutable. It cannot be edited or deleted, ensuring financial data integrity.

Receipt vs Invoice – Key Differences

Purchase Receipt

• Confirms that goods have been physically received from the vendor.
• Updates inventory quantities for item-based purchases.
• Makes items available for use, sale, or production.
• Does not create a vendor ledger entry.
• Does not post any financial liability.
• The cost is considered expected, not yet actual.
• No legal obligation to pay the vendor at this stage.
• Serves as an operational and audit record of goods received.

Purchase Invoice

• Confirms the vendor’s formal claim for payment.
• Creates a vendor ledger entry.
• Records vendor liability in the system.
• Posts purchase costs to the general ledger.
• Finalizes inventory valuation for item purchases.
• Calculates and posts applicable taxes.
• Creates a legal obligation to pay the vendor.
• Becomes a posted document that cannot be edited or deleted.

• Purchase Receipt focuses on physical and operational confirmation.
• Purchase Invoice focuses on financial recognition and legal obligation.

System Entries Affected by a Posted Purchase Order

A posted Purchase Order impacts multiple system ledgers simultaneously. These entries are created automatically by Business Central to maintain consistency across inventory, vendor balances, and accounting.

Item Ledger Entries record the physical movement of inventory. When a purchase receipt is posted, the system creates a positive quantity entry, reflecting that items have been received into stock.
These entries track:
• Quantity received
• Location
• Posting date
• Item reference
They form the foundation for inventory availability and traceability.

Value Entries represent the monetary value associated with item movements. When a Purchase Invoice is posted, Value Entries capture the cost of inventory, including direct costs and any additional charges.
These entries are essential for:
• Inventory valuation
• Cost of goods sold calculations
• Financial reporting
They link physical inventory movement with financial cost recognition.

Vendor Ledger Entries

Vendor Ledger Entries record the financial relationship with the vendor. When the Purchase Invoice is posted, the system creates a vendor ledger entry showing the amount payable.

This entry tracks:
• Invoice amount
• Due date
• Payment terms
• Remaining balance
It enables payment processing, reconciliation, and vendor aging analysis.

General Ledger Entries

General Ledger Entries reflect the final accounting impact. Depending on the purchase type, amounts are posted to inventory accounts, expense accounts, tax accounts, and accounts payable.

These entries ensure that:

• Expenses are recognized correctly
• Assets are capitalized properly
• Financial statements remain accurate

Every posted purchase ultimately flows into the general ledger.

VAT / GST Entries

Tax entries are generated to comply with statutory requirements. Business Central calculates input tax based on vendor and item tax configurations and posts it separately.

These entries support:

• Tax reporting
• Compliance audits
• Input tax credit calculations

Incorrect purchase postings can lead to tax discrepancies, which is why understanding this process is crucial.

Why Purchase Posting Accuracy Matters

Purchase transactions sit at the intersection of operations and finance. A mistake in posting can lead to overstated inventory, incorrect vendor balances, or inaccurate financial results.

For example, receiving goods without invoicing may inflate inventory temporarily, while invoicing without proper receipt may distort expense timing. Business Central’s structured workflow exists to prevent such inconsistencies, but only when users understand and follow it correctly.

Conclusion

The Purchase module in Business Central is far more than a data entry tool. It is a fully integrated system that connects vendor management, inventory control, tax compliance, and financial accounting.

By correctly creating and posting Purchase Orders, businesses ensure that:

• Inventory quantities are accurate
• Vendor liabilities are properly tracked
• Financial statements reflect true costs
• Audit trails remain clean and reliable

A solid understanding of this workflow is essential for anyone working with Business Central, whether as an end user, consultant, or developer.