6.1 Purchasing Materials, UCC & Inventory (FIFO)

6.1 Purchasing Materials, UCC & Inventory (FIFO)

Business & Finance (B&F) Area B — Managing Administrative Duties is 26% of 120 questions, the second-largest B&F slice after accounting. Item 5 of that area is purchase materials: depreciative costs, the Uniform Commercial Code (UCC), inventory, invoice approval, negotiating, purchasing and receiving systems, Florida sales tax, the statute of frauds, and vendors. A Class A or Class B air-conditioning qualifier who can size a 7.5-ton split system and still pays tax twice on the same condenser, books a rooftop unit as a depreciable asset, or argues an oral $18,000 equipment order in court is not managing administrative duties. The 2026 B&F references that carry this cluster are the Contractors Manual 2025 (used beginning February 1, 2026), Builder's Guide to Accounting (2001), and Florida Statutes — especially Chapter 672 (Florida's UCC Article 2) and the Florida Department of Revenue's contractor sales-tax rule.

Why purchasing is a qualifying-agent problem

Under F.S. 489.1195, every primary qualifying agent (QA) is jointly and equally responsible for financial matters unless the Construction Industry Licensing Board has approved a financially responsible officer (FRO). Buying copper, compressors, and filters is financial work. The person who signs the purchase order (PO) is spending job cash before the owner has paid a draw. A shop that lets every tech phone a supply house, accept whatever shows up, and then argue the invoice two weeks later will fail three-way matching, fail FIFO, and fail a Chapter 713 lien fight when the unpaid vendor serves a Notice to Owner (NTO).

Purchasing systems, receiving systems, and invoice approval

Separate purchasing from receiving. Purchasing decides what to buy, from whom, and at what price. Receiving decides what actually arrived and in what condition. Accounts payable (AP) decides whether to pay. The exam term for tying those three together is the three-way match:

1. Purchase order — quantity, description, unit price, freight terms, promised date, job number, and the contractor's CILB license number where the vendor's credit file requires it.
2. Receiving report (packing ticket, bill of lading, or warehouse receipt) — count, model and serial numbers, visible damage, shortages, and the job or stock location.
3. Vendor invoice — the bill. Pay only what the PO authorized and the receiving report confirmed, at the price the PO locked.

If the invoice says 12 condensers at $1,410 and the PO said 10 at $1,375, AP does not “split the difference.” It holds the invoice, issues a debit memo or short-pay, and gets a corrected invoice. That is invoice approval. Builder's Guide to Accounting treats unapproved invoices as a path to overstated job cost and a distorted percentage-of-completion number in the next section.

A workable HVAC purchasing system also includes an approved vendor list, current Form W-9 data, and, when the “vendor” is also a sheet-metal or insulation subcontractor, certificates of insurance and a written subcontract — not a counter ticket. Lead times for condensing units, compressors, and custom curb adapters belong on the PO. An oral “it'll be here Tuesday” is not a receiving system.

Negotiating with vendors

Negotiation is not haggling for sport. The qualifier (or the purchaser the QA supervises) is trading cash, risk, and time:

• Price and quantity breaks — a committed annual volume on a filter or refrigerant line versus a one-off emergency buy at list.
• Payment terms — 2/10 net 30 means a 2% discount if paid within 10 days, otherwise the net amount is due in 30. Missing a 2% discount is an expensive loan; taking a discount that the invoice never offered is a dispute waiting to hit retainage.
• Freight and risk — FOB shipping point (UCC F.S. 672.319 concepts) generally puts transit risk on the buyer once the carrier takes the goods; FOB destination generally keeps risk on the seller until delivery. The receiving report is how you prove the goods arrived damaged.
• Warranty and returns — who owns a failed compressor in month 11, and whether unused fittings can go back without a restocking fee.
• Title — UCC F.S. 672.401 separates title from possession. A vendor who “retains title” until paid is still often a seller of goods; your job is to know when you can issue the unit to the rooftop and when the vendor can reclaim it.

Do not negotiate a lower unit price by letting the vendor skip a written PO on a $12,000 equipment drop. That is how statute-of-frauds problems start.

UCC, goods, and the statute of frauds

Florida's UCC Article 2 is Chapter 672. It governs transactions in goods — movable things, including condensers, copper tubing, thermostats, filters, and refrigerant cylinders. It does not govern the construction contract to improve real property; that contract is common-law services plus Florida contractor and lien statutes. The exam trap is treating a $9,400 air-handler purchase as “just part of the construction contract” and then discovering you have no writing that identifies quantity when the supply house ships two of the wrong model.

F.S. 672.201 (statute of frauds) is the number the exam wants: a contract for the sale of goods for the price of $500 or more is not enforceable by action or defense unless there is some writing sufficient to indicate that a contract for sale has been made, signed by the party against whom enforcement is sought. The writing does not have to be a formal contract. A signed PO, a signed quote, or a merchant's confirmatory memorandum can suffice, but it is not enforceable beyond the quantity shown. Exceptions the B&F materials test:

• Specially manufactured goods — custom-fabricated rectangular duct, a one-off curb adapter, or a coil built to a unique connection, if the seller has made a substantial beginning before repudiation and the goods are not suitable for sale to others in the ordinary course.
• Goods received and accepted, or paid for and accepted — partial performance takes that portion out of the writing requirement.
• Between merchants, a confirmatory writing sent within a reasonable time (the UCC's classic 10-day objection window) can bind the receiving merchant who does not object in writing.

The general Florida statute of frauds, F.S. 725.01, still covers agreements not to be performed within one year, suretyship promises, and real-estate interests. A multi-year service agreement or a land-related promise can need a writing even when no single equipment line is $500. Do not confuse 725.01 with 672.201: one is the old common-law writing list; the other is the UCC goods rule with a $500 trigger.

UCC implied warranty of merchantability (F.S. 672.314) and fitness for a particular purpose (F.S. 672.315) ride along when you buy from a merchant of those goods, unless disclaimed in the manner the Code allows. That is why the PO and the vendor's terms-and-conditions fight (the battle of the forms, F.S. 672.207) belongs in the purchasing file, not in a tech's text thread.

Florida sales tax, use tax, dealer versus consumer

Florida's state sales tax rate is 6%. Counties may add a discretionary sales surtax. Do not invent a county rate on the exam. State the 6% state rate and say the candidate confirms the surtax for the county where the taxable sale or use occurs. Use tax is the companion levy when materials are purchased out of state or tax-free and then used in Florida; the contractor accrues tax at the same 6% plus the local surtax of the county of use.

Rule 12A-1.051, F.A.C., is the contractor rule. For a real property contract — lump sum, cost-plus, guaranteed/upset price, or ordinary time-and-materials to erect, construct, alter, repair, or maintain a building or other improvement — the HVAC contractor is the ultimate consumer of the materials and supplies incorporated into the work. The contractor pays tax to the vendor (or accrues use tax) on copper, refrigerant, ductboard, hangers, thermostats, and the air handler, and does not separately charge the owner sales tax on the contract price. Central HVAC systems that are ducted, wired, or plumbed into the structure are on the rule's real-property list (the rule's section 17 examples include HVAC systems). Window air-conditioning units and similar removable equipment are generally tangible personal property (TPP); selling and installing those is a dealer transaction, and the contractor collects tax from the customer.

The exception everyone wants and almost no HVAC lump-sum job qualifies for is the retail sale plus installation contract in 12A-1.051(3)(d): specifically described and itemized materials priced before work begins, with labor at a separate agreed price or on time consumed. Under a genuine (3)(d) contract the contractor is a dealer, may buy with a resale certificate, and charges the customer tax on the materials (not on the installation labor). If you itemize some materials and bury others, the Department of Revenue can tax the whole personal-property sale. Do not issue a resale certificate on a lump-sum rooftop changeout just because it “feels like” a retail sale.

Shop-fabricated duct and fittings used in a real property contract are still the contractor's consumption: tax (or use tax) is due on the cost of materials fabricated in the shop, not on a made-up retail price of the finished joint. Mixing a TPP counter sale (a homeowner buying a window unit) with a real-property changeout on the same invoice is how audits start.

Inventory FIFO versus depreciative costs

Inventory is a current asset: filters, refrigerant, copper, contactors, and stocked condensers waiting for a job. Depreciable (depreciative) costs are capital assets that provide more than one job's benefit — the sheet-metal brake, vacuum pumps, recovery machines, refrigerant identifiers, vans, and the shop building. Job materials are not depreciated. Putting a 5-ton condensing unit on the depreciation schedule because “it is equipment” is the classic Builder's Guide trap. Issuing that unit to Job 441 turns inventory into direct job cost. Leaving it on the shelf at year-end leaves it on the balance sheet as inventory, valued under the company's cost-flow method.

FIFO (first in, first out) assumes the oldest unit costs flow to the job first. Ending inventory is the most recent purchases. HVAC matches FIFO physically more often than not: you want last summer's refrigerant off the shelf before this year's cylinders, and you issue the condenser that has been sitting the longest. LIFO (last in, first out) charges newest costs to the job and can leave old costs in inventory; it is an accounting election, not a requirement that you physically grab the newest box. Weighted average blends unit costs. Specific identification is used for serialized major equipment when you can point to serial number 1234 and its actual invoice.

Worked FIFO example. The shop buys 20 cases of 1-inch filters at $40 in January ($800) and 30 cases at $46 in March ($1,380). Techs issue 25 cases to jobs. FIFO job cost is 20 × $40 + 5 × $46 = $1,030. Ending inventory is 25 × $46 = $1,150. LIFO job cost on the same issues would be 25 × $46 = $1,150, with ending inventory 20 × $40 = $800. Percentage-of-completion profit in section 6.2 moves when you pick the wrong cost flow, because job cost is the numerator.

Physical inventory at least annually (and cycle counts on refrigerant and high-dollar compressors) is what makes FIFO more than a spreadsheet story. Receiving must tag stock versus job-direct shipments. A “ship to job” condenser that never hits the warehouse still needs a receiving ticket so AP can match the invoice and so Chapter 713 suppliers can be paid from the draw that billed that unit.

Florida HVAC scenario

Gulf Breeze Mechanical, a certified Class B firm, is replacing a 4-ton split in a Navarre residence under a $14,800 lump-sum contract. The project manager phones a wholesaler and says “send the usual 14-SEER four-ton and whatever line set you have,” no PO, oral only, equipment and copper well over $500. Two days later a 5-ton outdoor unit arrives FOB shipping point, damaged on one corner. The vendor invoices $6,200, claims title passed at the dock in Birmingham, and has no signed writing showing a 4-ton quantity. Meanwhile the bookkeeper issues a resale certificate because “we resell equipment to homeowners,” and does not pay tax to the vendor. The QA then tells payroll to put the condensing unit on the depreciation schedule “until we install it.”

Every one of those moves is an exam miss. The purchase of goods of $500 or more needed a writing under 672.201. FOB shipping point did put transit risk on the buyer — which is why the PO should have specified FOB destination or required shipping insurance and a receiving inspection before AP approval. The lump-sum ducted split is a real property contract: the contractor is the consumer, pays 6% plus the county surtax (confirm Santa Rosa County's current discretionary surtax; do not invent it), and does not tax the homeowner on the $14,800. The condensing unit is inventory then job cost, not a depreciable asset. And if the vendor is not paid, that vendor's NTO clock under Chapter 713 is already running against the owner's property — which is the QA's financial problem, not merely AP's.

The purchasing discipline the exam is testing is dull on purpose: write the PO, receive against it, match the invoice, pay tax as a consumer on real-property materials, count inventory FIFO, and depreciate the brake and the recovery machine — not the rooftop you are about to set.