Difference Between Purchases And Inventory

Purchases is the purchasing of goods or services from suppliers, creditors or vendors customers for cash or on credit or on account while Inventory are goods or merchandise in hand or remain unsold at the end of the accounting period.

Purchases is added to the opening inventory and shown on Income Statement or Trading Account while closing inventory which remains unsold for the accounting cycle is treated as a Current Asset and shown on Balance Sheet.

Goods purchased are called Purchases which are either Cash Purchases or Credit Purchases while Inventory / Stock is the goods or merchandise remain unsold at the end of the accounting period.

Inventory Purchases is added to the Opening Inventory which is the Closing Inventory of previous accounting cycle while inventory purchases of current accounting period are recorded.

The similarity between purchases and inventory is that both are used to calculate Cost of Goods Sold / Cost of Sales.