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What is net purchases?

Author:
Harold Averkamp, CPA, MBA

Definition of Net Purchases

Net purchases refers to the combination of the amounts found in the following general ledger temporary accounts:

  • Purchases (gross amount for goods purchased)
  • Purchases Discounts (early payment discounts for paying some vendors’ invoices in 10 days instead of 30 days)
  • Purchases Returns and Allowances (credit memos received for returning goods to vendors or for other conditions)

These accounts are used by a company that purchases goods for resale and uses the periodic inventory system in its general ledger.

Example of Net Purchases

To illustrate the calculation of net purchases, assume that a company had the following general ledger account balances at the end of its accounting year:

  • Purchases had a debit balance of $250,000
  • Purchases Discount had a credit balance of $3,000
  • Purchases Returns and Allowances had a credit balance of $9,000

Based on the above general ledger account balances, the company’s net purchases for the year were $238,000 ($250,000 – $3,000 – $9,000).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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