Purchase

Purchase refers to the total cost of goods or raw materials bought by a business during an accounting year, mainly for the purpose of resale or production. Purchases can be made in cash or on credit, and they are a core part of trading activities. The total purchase amount forms an essential component of the cost of goods sold (COGS).

Purchases are recorded on the debit side of the Trading Account and exclude any items bought for long-term use, such as machinery or furniture. Any purchase returns (goods sent back to suppliers) are subtracted to arrive at net purchases. Keeping accurate records of purchases helps in stock control, expense tracking, and profit calculation.

Key Points:

• Refers to goods bought for resale or manufacturing purposes.
• Includes both cash and credit transactions.
• Excludes purchase of fixed assets (e.g., machines, computers).
• Appears on the debit side of the Trading Account.
• Purchase returns are deducted to find net purchases.
• Affects the cost of goods sold and gross profit.

Examples:

• Bought goods worth ₹1,50,000 from a supplier on credit – recorded as purchase.
• Purchased raw materials in cash for ₹40,000 – included in purchase.
• Returned ₹10,000 worth of goods – net purchase is ₹1,40,000.