Three-Way Matching
Definition
A verification process that matches the purchase order, goods receipt note, and vendor invoice to ensure you only pay for what was ordered and received at the agreed price. Prevents fraud and errors.
Related Terms in Purchasing & Inventory
FIFO (First In, First Out)
An inventory valuation method where the oldest stock is sold first. During inflation, FIFO results in lower COGS and higher reported profits compared to LIFO.
Inventory Valuation
Determining the monetary value of stock on hand, which sets both the balance-sheet asset and cost of goods sold. The method chosen, FIFO, LIFO or weighted average, changes reported profit when input prices move, so it must be applied consistently.
LIFO (Last In, First Out)
An inventory costing method that charges the most recently purchased stock to cost of sales first. In a rising-price environment it reports higher cost of sales and lower profit than FIFO. Permitted under US GAAP but prohibited under IFRS.
Weighted Average Cost
An inventory method valuing every unit at the average cost of all units available, recalculated as new stock arrives. It smooths the effect of price volatility and is permitted under both GAAP and IFRS.
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