Similarities & Differences Between Purchases And Cost of Goods Sold (COGS) With Relationship

Purchases is the part of cost of production. It is a Direct Expense to be recorded in the Income Statement or Trading Account in order to calculate the Cost of Goods Sold / Cost of Sales.

Cost of Goods Sold or Cost of Sales is the sum of Opening Inventory plus Purchases minus Closing Inventory. Cost of Sales include all the direct expenses including Purchases in order to sell the products to end customers. So, cost of sales is a wider term as it includes purchases as well.

Similarities Between Purchases And Cost of Goods Sold

Both are incurred to produce goods or products to sell to end customers for the accounting period.

Both are used in the calculation of Gross Profit or Gross Income and recorded in Income Statement or Trading Account.

Relationship Between Purchases And Cost of Goods Sold

The relationship between purchases and cost of goods sold can be derived from the following formula:

                          Cost of Sales = Beginning Inventory + Purchases - Ending Inventory