Difference Between Purchases And Expenses In Accounting

Purchases are goods or merchandise purchased for cash or on credit or on account while Expenses are incurred for the purpose of earning Revenues for the business.

There are two types of purchases i.e., Cash Purchases and Credit Purchases while two main types of expenses are Direct Expenses and Indirect Expenses.

Expenses are recorded in Income Statement in order to find out Cost of Sales as it is a part of Direct Expenses while only direct expenses are the parts of cost of production and recorded under the section of Cost of Sales in Income Statement or Trading Account but indirect expenses are recorded in Income Statement or Profit & Loss Account as these are not directly related to the cost of production. So, the expenses recorded in Income Statement are categorized as Operating Expenses, Marketing & Selling Expenses Administrative Expenses and Other Expenses. So, purchases are recorded either in Trading Account or Income Statement but not in Profit & Loss Account as it is a part of cost of production i.e., an example of direct expense.

Purchases is a direct expense as it is the part of cost of production while Operating Expenses are indirect expenses incurred to run the daily business operations. These are not considered as a part of cost of production.

So, we conclude that "The Main Or Primary Difference Between Purchases And Expenses Is That Purchases Is The Costs Added To The Cost Of Production While Expenses May Or May Not Be Added To The Cost Of Production As These Consist Of Direct And Indirect Expenses".