What is net purchases?

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).