Similarities & Differences Between Purchases And Cost of Goods Sold (COGS) With Relationship
Purchases is the part of cost of productio n. 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 Betwee n Purc hases A nd Cost of Goods Sold Both are i ncurred to produce goods or products to sell to end customers for t he accou nting period. Both are used i n t he calculatio n of Gross Profit or Gross Income and recorded in Income Statement or Trading Account . Relatio nship Betwee n Purc hases A nd Cost of Goods Sold The relationship between purchases and cost of goods sold can be derived from the following formula: