Net purchases

Definition

Net purchases represent the total amount of goods bought during a period after accounting for returns, allowances, and discounts. It is a key metric in determining the cost of goods available for sale in merchandising activities.

5 Must Know Facts For Your Next Test

1. Net purchases are calculated as Purchases minus Purchase Returns and Allowances minus Purchase Discounts.
2. Net purchases are recorded on the income statement under Cost of Goods Sold (COGS).
3. Understanding net purchases helps in accurately tracking inventory costs and profitability.
4. Purchase Returns and Allowances reduce the total purchase amount when customers return goods or receive price reductions.
5. Purchase Discounts, often offered by suppliers for early payment, further decrease the total purchase cost.

Review Questions

Related terms

Gross Purchases:

The total amount spent on merchandise before any deductions for returns, allowances, or discounts.

Purchase Returns and Allowances:

Deductions from gross purchases when returned merchandise or price adjustments occur.

Purchase Discounts:

Price reductions granted by suppliers to incentivize early payment by buyers.