Purchases

Purchases refer to the total amount of goods a business buys, whether on credit or for cash, for the purpose of use or sale. The term covers all procurement of stock-in-trade.

In a trading concern, purchases are made of merchandise (goods) that will be resold either in the same form or after minimal processing. For example, a grocery store buys packaged snacks to sell directly to customers.

In a manufacturing concern, purchases consist of raw materials. These materials are then processed further into finished goods and finally sold. For instance, a furniture factory buys timber, which is turned into chairs and tables.

Purchases can be classified into two types based on the mode of payment:

• Cash purchases — goods bought and paid for immediately.
• Credit purchases — goods bought with an agreement to pay later.