International Project Management Association (IPMA) Practice Exam

A purchase order represents:

1. A commitment

2. An expense

3. A cash outflow

4. A capital investment

The correct answer is: A commitment

A purchase order serves as a formal document issued by a buyer to a seller, indicating the buyer's intent to purchase specific goods or services. It signifies a commitment to the transaction, outlining what the buyer is willing to acquire and under what terms. Essentially, the purchase order represents a legally binding agreement once accepted by the seller, ensuring that both parties are clear about the expected deliverables and prices. While a purchase order can lead to expenses and cash outflows in the future, those characteristics are outcomes of the transaction rather than defining features of the purchase order itself. Similarly, a purchase order does not denote a capital investment, which typically involves purchasing long-term assets that will benefit the business over a prolonged period. In this context, the emphasis is on the binding nature and commitment implied by the purchase order, making it the most accurate representation.