What Are Purchases In Accounting

When goods are purchased on Cash Basis or Credit Basis / Accrual Basis with the purpose of reselling these later on, then we can say that purchases are made for the business. The word "Purchases" is specifically used for goods or Merchandise / Inventory purchased in Accounting. Also the word "Purchased" is more relevant to the accounting world rather than "Purchasing". If goods are bought for only use in Business, then it is not called Purchased rather than an Asset. For Example, if Mr. A purchased Chairs for selling purposes, then it is called purchases but if he used them in business for operating and not for sale purposed then this is Current Asset and categories as Furniture.

Purchases is not limited to goods or merchandise, but it also includes office supplies and services as these are incurred or rendered for the purpose of selling or for the running of the business operations. But, normally, goods purchased are called purchases in accounting.

Purchases are Direct Expenses and it is necessary to operate the business for generating the Revenue. Business needs to buy goods from time to time for running and for the source of the Incomes / Revenues.

You Can Also Read Out, ”How To Calculate Cash Purchases And Credit Purchases”

Purchase Day Book is prepared to record Journal Entries related to Credit Purchases while Cash Purchases are recorded in Cash Book.

Purchases Debit Or Credit

Purchases have no Balance as it is the profitable activities of the owners of the business, so it is closed to Income Statement / Profit And Loss Account at the end of Accounting Period. We debit Purchases, when it incurs and credit when we close it.feed

Purchases Journal Entry

Example: Suppose, Mr. X purchased 10 Tables worth Rs. 30000 (Each Rs. 3000) from Mr. B on Cash Basis, Mr. X records this Transaction in the Cash Book as shown below:

                                               Purchases a/c    30000

                                                                     Cash a/c     30000

(Purchased Tables For Cash)

Is Purchases Account An Asset?

Or

What Type of Account Is Purchases?

No, it is not an asset as mentioned above. Goods are purchased only for reselling purposes are called purchases. In fact, Purchases Account is a Direct Expense recorded in the Income Statement or Trading & Profit And Loss Account, So as a result it also not shown in the balance sheet.