Gross purchases

Definition

Gross purchases represent the total cost of all merchandise bought by a company before any deductions like returns or allowances. It includes the purchase price as well as any additional costs such as shipping and handling fees.

5 Must Know Facts For Your Next Test

1. Gross purchases are recorded in the inventory account on the balance sheet.
2. They do not include discounts, returns, or allowances which are deducted later to find net purchases.
3. Gross purchases impact both the cost of goods sold (COGS) and ending inventory values.
4. Accurate tracking of gross purchases is crucial for proper financial reporting and inventory management.
5. In merchandising companies, gross purchases are a primary component of calculating the cost of goods available for sale.

Review Questions

Related terms

Net Purchases:

The total cost of merchandise bought after deducting returns, allowances, and discounts.

Cost of Goods Sold (COGS): The direct costs attributable to the production or purchase of the goods sold by a company.

Inventory:

Goods available for sale and raw materials used to produce goods that are held by a company.