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Estimates vs. Purchase Orders: What’s the difference?

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Estimates and Purchase Orders can be created using QuickBooks.  Many people want to know what the difference between the two are and when it is appropriate to use them. 

I often see a lot of confusion on the QuickBooks forums about Estimates and Purchase Orders, what the differences are, and when you should use each one.

estimate vs purchase orderAn Estimate, otherwise known as a Bid, Proposal, Quote or perhaps even a Schedule of Values in the construction industry, is a detailed breakdown of work or tasks that you will perform in order to complete a project for a specific customer or a specific job and what you will charge them to do it.

A Purchase Order, on the other hand is normally something that you issue for materials or the services of some else that you need to purchase in order to complete a project that you are are working on and can be used to track your expenditures.

Common Questions:

“I’ve received a Purchase Order from a customer or client, how do I enter that into QuickBooks?”

When you receive a PO from a customer or client you enter it into QuickBooks using the Estimate form and you then invoice from that Estimate according to how much of the work or project you have completed – this is known as Progress billing or percentage of completion billing.

“I’ve subcontracted out part of a job to another contractor for a specific amount, how do keep track of how much I’m really paying so I’m not overcharged?”

In this case you would enter the information into QuickBooks using the Purchase Order form, as the subcontractor submitted his bills or invoices to you, you would then apply them against the PO.  If the original amount was $1,000.00 but he submitted bills or invoices totaling $1,200.00 you’ll easily see the difference.

“I’m trying to find a report to track construction bids with payments.  I was trying to use the PO tracking, but cannot get it to show payments received, open balance and/or percent complete.”

In this case using an Estimate combined with Progress Invoicing is the most appropriate solution.

Terminology can be confusing, so remember this simple solution:

Use the Estimate form to track money in and the Purchase Order form to track money out.

I hope you’ve found this post to be helpful, if so please take a moment to either leave a comment or share it with others on your favorite social media network.

About Your Host:

Nancy Smyth, Certified QuickBooks ProAdvisor

Nancy Smyth, Sunburst Software Solutions, Inc.
QuickBooks Construction & Payroll Expert

I've been using and supporting QuickBooks products since the early 1990's. I've worked with thousands of contractors, assisting them with QuickBooks setup, Certified Payroll Reporting requirements, AIA Billing and Weighted-Average Overtime.

QuickBooks is a powerful product, but learning how to use it in your construction business can be difficult. I hope you find resources available here to be helpful.

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