To illustrate the calculation of net purchases, let's assume that a company had the following activity:
- the account Purchases shows a debit balance of $250,000 which is the gross amount of its purchases of goods that were bought to resell
- the account Purchases Discount shows a credit balance of $3,000 resulting from vendors' early payment discounts
- the account Purchases Returns and Allowances has a credit balance of $9,000 resulting from vendors' credit memos
Based on the above activity the company's net purchases are $238,000 ($250,000 - $3,000 - $9,000).
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