What Is Extended Price on a Purchase Order?
Learn the extended price on a purchase order. Essential for financial accuracy and transparent business dealings.
A purchase order (PO) serves as a fundamental commercial document in business transactions. It is formally issued by a buyer to a seller, outlining the specific types, quantities, and agreed-upon prices for products or services required. Understanding the various pricing details within a PO is crucial for both parties involved, as it ensures clarity and accuracy throughout the procurement process.
Understanding Extended Price
The “extended price” on a purchase order represents the total cost for a specific line item. It is the product of the unit price of an item multiplied by the quantity purchased. The extended price applies to individual components rather than the entire order, allowing for a detailed breakdown of expenses.
Calculating Extended Price
Calculating the extended price is a straightforward process using a simple formula: Quantity × Unit Price = Extended Price. For example, if a buyer orders 10 units of an item priced at $50 per unit, the extended price for that line item would be $500. Automating this calculation within an accounting or enterprise resource planning (ERP) system helps ensure accuracy and efficiency, eliminating manual errors.
Significance of Extended Price
The extended price holds importance for both buyers and sellers in a transaction. For buyers, it facilitates accurate budgeting and tracking of expenses on an item-by-item basis. It also aids in verifying invoices received from the seller, ensuring that the charges align with the agreed-upon prices on the purchase order.
For sellers, the extended price is crucial for accurate billing and proper revenue recognition. It assists in effective inventory management by providing clear data on the value of goods sold per line item. The accuracy of extended prices contributes to transparent financial record-keeping, which is important for compliance and business analysis.
Related Pricing Terms
The extended price fits within a broader context of pricing terms on a purchase order, contributing to the overall transaction value. While the extended price is the cost for a specific quantity of a single item, the unit price represents the cost per single item.
The subtotal on a purchase order is the sum of all extended prices for all line items. This figure represents the total cost of the goods or services before any additional charges or adjustments. The final amount due, or total amount, includes the subtotal plus any added charges such as shipping fees, applicable taxes, or less any discounts. Understanding these distinct terms provides a comprehensive view of the financial commitment outlined in a purchase order.