In a collection of columns, the cost report summarizes what’s been spent and what is yet to be spent, so you may wonder… since purchase ordered goods and services are not yet actually paid, why not clump those costs into the “to be spent” column and be done with it?
That’s because the “purchased ordered costs” are quite literally between “costs spent” and “costs to be spent.” They are “costs promised.” And I mean Promised with a capital “P.” P.O.s are serious business.
Very basically, the P.O. is a signed agreement between seller and buyer. A contract.
On it, you make the deal: the seller promising to deliver specific services or item(s) for a given price, and you – the buyer – promising to pay the matching invoice when it arrives from the seller later (your promise is recorded in the signed approval on the P.O.).
Then you (or your Accounting Department) put sufficient money aside to cover the forthcoming invoice, so that when it arrives, the money is in the bank to pay it. All’s well!
Kinda makes you think about credit cards, doesn’t it? (1) Charge and receive the goods, (2) mentally put sufficient money aside, and then (3) pay in full when the credit card bill arrive at month’s end.
Yup. The way credit cards should be handled! The P.O. can teach us a thing or two.
Cheers and happing P.O.’ing to you,
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For more info on P.O.s and cost reports, then come and check out my book “Film Production Management 101.”
You can also see me in person at the UFVA Conference in Las Vegas, July 31 – Aug. 4. I’ll be on several panels or at the MWP Books booth.
I’ll also be at the Future of Story Conference on August 1.