A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies should not get recorded in the purchases account.) This account reports the gross amount of purchases of merchandise. Net purchases is the amount of purchases minus purchase returns, purchase allowances, and purchase discounts. To Top
In retail, wholesale and distribution companies, all items bought for resale. In manufacturing companies this category also includes materials and parts bought to go into the eventual goods for sale. Purchases must only include those costs which are going to be kept in inventory. Most companies include Freight In here, for instance, whereas Freight Out, or shipping expenses to the customer, are charged to the customer above the sales price or absorbed as an Operating Expense. It is good conservative policy to not stuff too many extra charges into this category. If you do, you end up with inflated values of inventory which are unlikely to ever be recovered. All other purchased items for the general running of the company (catalogues, coffee supplies, stationery, cleaning materials, computer consumables, and so on) are included under Operating Expenses.