How To Calculate Credit Purchases From Income Statement

Firstly, You can calculate Purchases from Income Statement by using the Cost of Sales Formula, and then calculate Credit Purchases if Cash Purchases is given.

We know that Cost of Sales Formula is:

               Cost of Sales = Opening Inventory + Total Purchases - Closing Inventory

Let’s us understand the computation of Credit Purchases with the below examples:

Example 1.

Here

Cost of Goods Sold = Rs. 120000, Opening Inventory = Rs. 9000, Closing Inventory = Rs. 11000, Cash Purchases = Rs. 48800, Credit Purchases = ?

Putting the values, we have:

                                      120000 = 9000 + 48800 + Credit Purchases - 11000

                                        Credit Purchases = 120000 - 46800 = Rs. 73200

                          Here Total Purchases = Cash Purchases + Credit Purchases

Example 2.

Here we find out Credit Purchases with the help of Gross Profit Ratio to firstly find out the Cost of Sales and then Credit Purchases

Beginning Inventory = Rs. 13000, Sales = Rs. 170000, Cash Purchases = Rs. 48500, Credit Purchases =?

Ending Inventory = Rs. 87000

Gross Profit Percentage on Cost is 20%

We know:

            Cost of Sales = Sales - Gross Profit

As Gross Profit is 20% On Cost, so Cost percentage is 100 and the company earns 20% profit where the percentage of cost is 100 and the percentage of gross profit is 20 so the company sells the products or goods at 120% as Sales = Cost of Sales + Gross Profit, so we have:

Gross Profit = 20 / 120 X 100 = 16.67% on Sales = 16.67/100 X 170000 = Rs. 28339

Now

                                  Cost of Sales = 170000 - 28339 = Rs. 141661

We know:

                  Cost of Sales = Beginning Inventory + Total Purchases - Ending Inventory

                                  141661 = 13261 + 48500 + Credit Purchases - 8700

                                    Credit Purchases = 141661 - 53061 = Rs. 88600